Forecasts for air both cool and warm will continue to challenge investors in pricing natural gas this week, as the market prepares to receive data likely to show the second storage build for spring.
The U.S. Energy Information Administration is expected to say in its weekly gas report due at 10:30 AM ET (14:30 GMT) that utilities injected 29 billion cubic feet into storage after using the balance of the fuel produced last week to run heaters during one of the least cold weeks of the year. In the previous week to March 29, the EIA reported a withdrawal of 23 bcf from storage.
The EIA report comes as natural gas futures on the New York Mercantile Exchange’s Henry Hub look poised for a gain of more than 1% on the week if they maintain their upward trajectory through Friday. While that gain is modest to the winter profits of gas bulls—when the market rose as much as 14% in a week—it still represents a claw-back from the difficult trading conditions of March, when gas prices fell almost nonstop.
First Positive Month For Gas Bulls Since November?
Henry Hub’s benchmark gas contract for delivery in May is up 1.3% so far this month, its first in the black since November’s runaway gain of 41%. But analysts say a home run is far from certain for gas bulls this month, both technically and fundamentally.
Investing.com’s daily technical guide has a “Strong Sell” on May gas, with bottom-end support pegged at $2.641 per million British thermal units versus its Wednesday settlement of $2.700 per mmBtu.
Anticipating the remnant heating demand for spring also remains a test to even the most experienced traders, with the Rockies and the Plains in central U.S. forecast to have colder-than-normal temperatures in the next two weeks, while the Northeast, which influences gas pricing more than any other region, turns meaningfully warmer.
Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York said:
“I am maintaining my Nat Gas view and bias at neutral as the market is near the technical range resistance level.”
“The short-term weather pattern is projected to evolve back to a winter-like weather in key parts of the U.S., but it may be too little, too late.”
From Snowstorm To Warm Temperatures
Chirichella said cooler temperatures and a snowstorm in parts of the Midwest were expected to keep gas bears at bay over the next two weeks.
But he said forecasts over the next 11-15 days also showed warm temperatures emerging on both coasts as the “shoulder season” of spring—market terminology for weather that’s neither cold nor hot enough to require heating or cooling—gets underway.
Gas prices reached more than 4-1/2-year highs of nearly $5 per mmBtu at the height of the cold weather in November, as supply of the fuel struggled to keep up with demand despite record production almost throughout the year.
With the advent of spring, heating demand is evaporating, leaving a shoulder-season of at least a couple of months before cooling demand spikes from June onward.
Last week’s weather was slightly cooler than normal last week with 105 heating degree days (HDDs) versus a 30-year normal of 98 HDDs for the period. There were 117 HDDs in the same week a year ago.
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.
Given the warmer conditions expected in the U.S. Northeast this week, early estimates from analysts polled by Reuters for the week ending April 12 shows the volume of gas injected into storage could range wildly from 33-97 bcf and average at around 80 bcf.
Bears Still Have Chance To Profit, But Maybe Not Too Much
Dan Myers, analyst at Gelber & Associates in Houston, said:
“Although the market has seen this relatively bearish build coming, it could bring back some selling in its wake.”
But he also cautioned gas bears from trying to drive prices down too much, pointing to ramping demand for liquefied natural gas (LNG) out of the U.S.
Said Myers:
“Robust gas production will still find obstacles from power generation and LNG demand growth in the coming summer, and bullish deviations from normal weather expectations would also impede stronger injections.”