The first triple-digit weekly storage build of the year may have already happened in U.S. natural gas. But with the weather turning chill again, downward pricing pressure could also ease.
The U.S. Energy Information Administration is expected to report a build of 114 billion cubic feet for last week in its weekly gas inventory report due at 10:30 AM ET (14:30 GMT) today.
Bears Restrained By Benign Weather
With gas production remaining at or around record highs, the growth in storage, the fifth for this year, could give market bears ammunition to push prices beneath the key $2.50 support, if not for one factor—the arrival of more benign weather.
Dominick Chirichella, director of risk and trading at the Energy Management Institute of New York, said gas-related heating demand could see a pick-up, even this late into spring, if temperatures drop as forecast.
Said Chirichella:
“The upcoming weather forecast is mixed with cooler temperatures expected across the Midwest and northern parts of the country, with warmer-than normal-temperatures hitting the southern tier of the U.S.”
“It is the happy medium between warmer and cooler.”
The cooler setting, Chirichella said, could push up the spot June contract for natural gas on the New York Mercantile Exchange’s Henry Hub to a near-term peak of $2.65 per million British thermal units, matching a high from mid-April.
On the warmer end, the benchmark contract could reach $2.48 per mmBtu, a low last seen on April 18.
In Wednesday’s session, Henry Hub’s June contract settled up 4.5 cents, or 1.7%, at $2.62.
Subdued Action Expected From Hedge Funds
Investing.com has a “Strong Buy” for June gas in its daily technical outlook, pegging a peak as high as $2.69. If that comes through, it would give gas bulls an upside of nearly 3%.
Yet, some analysts like Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina, are expecting subdued action as hedge funds, or commodity trading advisors, sit tight on their bearish positions.
Said Shelton:
“Markets are firmer but I don’t see a lot happening.”
“It’s all very odd, but I think the spreads are moving on the basis of what people ‘need to do’ rather than fundamentals. They need to inject gas this summer and there is no carry in cash at the hub for the month of May. So, they buy June and sell forward to inject. And CTAs are short the front-end.”
Since demand for winter heating peaked in November, Henry Hub futures tumbled 36% in December and have fallen without break the past four months, accruing a year-to-date loss of 11%.
Last week’s weather was warmer-than-normal, with just 41 heating degree days (HDDs) versus a 30-year normal of 61 HDDs for the period.
HDDs measure the number of degrees a day's average temperature is below 65 Fahrenheit (18 Celsius) and are used to estimate demand to heat homes and businesses.
Next Build Seen Smaller, Before Late May Pick-Up
While last week’s warmth will deliver the first triple-digit storage build of the season, this week’s injection could be less substantial, according to a poll by Reuters, which anticipates a rise of 76-96 billion cubic feet, or an average of 86 billion bcf.
Dan Myers, gas analyst at Gelber & Associates in Houston, concurs with Shelton that the back-and-forth shift in weather and inventory builds was likely to prompt investors not to do much.
Said Myers:
“Stronger demand in the current week will finally restrain injections to levels more comparable historically with forecasts as low as a 76 bcf build.”
“But relatively mild weather and record production deeper in May could keep ensuing injections going at blistering, triple-digit pace.”