Summary
Natural gas (NYSEARCA:UNG) prices moved up 9% for the week.
Natural gas prices marched higher this week as storage draws are expected to increase for 12/16 and 12/23 week. Projected storage draws are now expected to completely wipe out surplus storage by the end of this month, and our EOS target for April 2017 is now 1.42 Tcf.
We released a Premium Update yesterday detailing our change to 2016 year-end US natural gas production exit. We previously expected US natural gas production to rebound to 72.5 Bcf/d by year-end, but as we get closer and closer to the end of the year, extreme weather conditions in the next two weeks will see delay in production, and we have revised lower our year-end target to 71.5 Bcf/d.
The delay has us revising higher the structural imbalance in the market for Q1 2017, and as a result, storage draws will be higher than we originally expected leading to lower EOS target for April 2017. Our EOS projection assumes normal weather conditions past December, so take that figure with a grain of salt. However, it does highlight that normal weather has the ability to draw down storage materially versus the five-year average.
In addition to the wider structural imbalance in the US, participants should also watch Canada's storage closely. The next two weeks will see monster draws, and with Canadian gas imports remaining around 5.5 Bcf/d, the impact on storage will see AECO prices moving materially higher. In fact, we believe that the AECO basis differential will significantly strengthen leading us to forecast C$4+ prices for Canadian natural gas producers. As US gas production gets delayed, US will need Canadian gas to meet Winter heating demand. The result will see Canada's storage take the big hits and we should see storage by Jan to be materially below the five-year average.
As natural gas prices move up, speculators and traders have to ask the question whether now is a good time to take profits. Geckoi Capital's recent updates have been more and more cautious and their daily trading updates are very insightful. We don't trade our positions and are currently positioned in these Canadian natural gas producers ( as disclosed here). If you are looking to glean trading strategies out of our articles, we think you are looking at the wrong place, however, we can share with you where we see sentiment and the current fundamentals.
Sentiment has definitely shifted to the bullish side; the question is to figure out how much of the recent move is priced in relative to reality. Looking at our storage forecasts, we think it's mostly priced in. The market is already looking for a week with -200+ storage draws, and weather for Jan is still uncertain. Weather will continue to dominate a large part of this sentiment move, but once storage falls below the five-year average, it's hard to make a very convincing bearish case against natural gas prices. Being outright bearish is not the right move to make.
We will be publishing a new weekly natural gas outlook this Sunday detailing storage forecasts and weather outlooks for the next two weeks. If you are interested in reading our weekly and our premium dailies, you can sign up here.
Source: SA
- Natural gas prices finished the week up 9%.
- Polar vortex catapults the bulls to new heights.
- We think most of the move is now priced in.
- But being outright bearish is foolish.
Natural gas (NYSEARCA:UNG) prices moved up 9% for the week.
Natural gas prices marched higher this week as storage draws are expected to increase for 12/16 and 12/23 week. Projected storage draws are now expected to completely wipe out surplus storage by the end of this month, and our EOS target for April 2017 is now 1.42 Tcf.
We released a Premium Update yesterday detailing our change to 2016 year-end US natural gas production exit. We previously expected US natural gas production to rebound to 72.5 Bcf/d by year-end, but as we get closer and closer to the end of the year, extreme weather conditions in the next two weeks will see delay in production, and we have revised lower our year-end target to 71.5 Bcf/d.
The delay has us revising higher the structural imbalance in the market for Q1 2017, and as a result, storage draws will be higher than we originally expected leading to lower EOS target for April 2017. Our EOS projection assumes normal weather conditions past December, so take that figure with a grain of salt. However, it does highlight that normal weather has the ability to draw down storage materially versus the five-year average.
In addition to the wider structural imbalance in the US, participants should also watch Canada's storage closely. The next two weeks will see monster draws, and with Canadian gas imports remaining around 5.5 Bcf/d, the impact on storage will see AECO prices moving materially higher. In fact, we believe that the AECO basis differential will significantly strengthen leading us to forecast C$4+ prices for Canadian natural gas producers. As US gas production gets delayed, US will need Canadian gas to meet Winter heating demand. The result will see Canada's storage take the big hits and we should see storage by Jan to be materially below the five-year average.
As natural gas prices move up, speculators and traders have to ask the question whether now is a good time to take profits. Geckoi Capital's recent updates have been more and more cautious and their daily trading updates are very insightful. We don't trade our positions and are currently positioned in these Canadian natural gas producers ( as disclosed here). If you are looking to glean trading strategies out of our articles, we think you are looking at the wrong place, however, we can share with you where we see sentiment and the current fundamentals.
Sentiment has definitely shifted to the bullish side; the question is to figure out how much of the recent move is priced in relative to reality. Looking at our storage forecasts, we think it's mostly priced in. The market is already looking for a week with -200+ storage draws, and weather for Jan is still uncertain. Weather will continue to dominate a large part of this sentiment move, but once storage falls below the five-year average, it's hard to make a very convincing bearish case against natural gas prices. Being outright bearish is not the right move to make.
We will be publishing a new weekly natural gas outlook this Sunday detailing storage forecasts and weather outlooks for the next two weeks. If you are interested in reading our weekly and our premium dailies, you can sign up here.
Source: SA
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