Welcome to the coil edition of Natural Gas Daily!
Housekeeping item first.
For the week of 7/24, we have a storage build of 20 Bcf.
Natural Gas Prices Are Coiling With A Big Move Coming Soon
Natural gas prices have managed to stay in a very tight but low price band for most of this summer, but the price action suggests there’s a big move in the making.
Technically speaking, there’s no bullish or bearish bias associated with this setup. If it breaks above the symmetrical triangle, it signals a much bigger move is set to follow. Vice versa also is true.
But, given the fundamental setup, it’s very hard to see a move break lower. The two biggest bearish tailwinds are unwinding over the next month:
- Low LNG exports.
- Recovering associated gas production.
Source: CME, HFI Research
LNG economics indicate there won’t be any cargo cancellations for October. So, by early August when the October cargoes are being fixtured, we should see no cancellations. This will give traders the signal that LNG feedgas will rebound to ~8 to ~9 Bcf/d, which would guarantee that natural gas storage in the US won’t hit operational peak capacity.
For the moment, this is also our forecast as we have 3.97 Tcf.
But for the natural gas market, this period of sub $2/MMBtu pricing has been the lowest over the last two decades. This has curtailed additional capex investments from all the natural gas producers, which inevitably foreshadows lower and lower production levels.
Even with EQT returning all of its ~1.4 Bcf/d of shut-in production and nearly all of the associated gas production returning fully online, lower 48 production remains at ~89 Bcf/d.
This means that natural decline ate up nearly ~3 Bcf/d of gas between May and July, which signals to us a much further drop in production into year-end.
As you can see, fundamentally speaking, all of this points to the bearish headwind running out and bulls regaining control soon.
For us, while we are still playing this natural gas rebound via a long position in EQT, we could switch to natural gas specific ETFs like BOIL or UNG when EQT hits our price target of $17.
As you can see above, if NG does breakout to the upside as we think it will, then EQT is likely to match the move higher.
Net-net, we think the market is coiling for a big move to come. One possible catalyst may be the early August nomination cycle for October LNG exports. If cancellations are low, then we expect prices to rebound to reflect the much lower concern on storage hitting full by November.
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Disclosure: I am/we are long EQT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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