- To keep the henry hub above $3 the gasbears need to arrive sooner and colder to arrive convincingly
- Inflation, Labor Shortages, Material Shortages Rise Gas Exploration Costs
- But a plunge in futures prices, already down 20% in 2023, could still come as a shock.
- Trade expects 71 bcf withdrawal after previous build of 11 bcf from gas storage last week
Bloomberg energy analyst Liam Denning said in August, when natural gas prices hit $10 per mmBtu, or millions of British Thermal Units, and hit double-digit prices for the first time, “investors The days of cheap gas willing to burn your own cash are over.” Since 2008.
Denning said gas futures across the New York Mercantile Exchange’s Henry Hub futures “had been almost above $5 for years” due to hot, muggy weather last summer that was unbearable without air conditioning. He said.
The weather also pushed Henry Hub shares to a 19-month low of $3.27 on Wednesday. But this time with unseasonably warm weather, from 2022 he could make it through the early 2023 winter with little or no heating for Americans.
It’s not just the weather. Record gas production in recent months has secured fuel reserves not seen in the last 18 months. As for prices, these developments keep his 2023 gas futures price below $4, excluding December. This is because, for now, supply is unlikely to recover until the coming summer, or at least he winter of 2023/24.
Talk about nature playing both ways.
In 2022, not only did the Henry Hub hit $10 per mmBtu, but it also hit a record high of €321 per MWh from less than €30 (€1 = $1.0821) a year ago. It was due to the added weather conditions. Blockade of Russian supplies in the aftermath of the Ukrainian War.
Now, for the first time since May 2021, US gas futures threatened to break below the critical $3 support, it would be explosive price action, and market bulls have enough to be saved from such an eventuality. We are racing against time, hoping that a cold wave will arrive soon. Predicament.
Others have questioned the validity of Denning’s declaration that “the days of cheap gas funded by investors willing to burn their own cash are over”.
Labor and materials shortages have pushed natural gas extraction costs higher with the arrival of the coronavirus pandemic, but as last month showed, Henry Hub futures could still underperform the wildest expectations of a gas bull. there is.
Call to Mother Nature
Thomas Saal, senior vice president of energy at StoneX Financial Inc., a New York-based energy broker, said in a statement to naturalgasintel.com.
“Mother Nature is pretty mild right now, and if nothing changes, it looks like a relatively warm winter. In the meantime, supply is plentiful and that weighs on prices.”
Houston-based energy trading consultancy Gelber & Associates also evoked “Mother Nature” in a comment addressed to natural gas customers, stating, “If the gas market is going to take its toll, buyers will pay about $3.80 per mmBtu. You will encounter some resistance,” he said.
If the Arctic encroachment is as intense as some weather models have touted since February, “it’s not out of the question for buyers to test the 4.00/mmBtu to 4.50/mmBtu zone.”
Conversely, if weather models have to backtrack their projections, “they are likely poised to fall into the $3.20/mmBtu range or below,” Gelber said.
Of course, gas bears expect even lower levels, with some proponents suggesting $2.50 is the bottom before a strong cold weather-backed rebound begins. 15.5% off compared to 2023.
The short-term outlook for weather is mixed and even confusing.
Major weather forecast models, such as the US-based Global Forecasting System (GFS) and the European ECMWF model, forecast cooler near-term temperatures by the last week of January. A higher-than-usual gas-weighted day (GWDD) may also occur around January 25th and last until February.
Still, the GFS downplays the intensity of the looming winter weather event, with fairly average rather than impressive chills that swooped south as far as Houston, Texas, bringing temperatures of 10 degrees in late December. It depicts the air masses of the Arctic.
Other weather models such as Canada (GEM) and CFSv2 take into account that temperatures in Siberia are -80 degrees Celsius, which could penetrate deep into the United States. His amount of GWDD for the period January 18-31 was the third highest in the last five years and is a notable improvement from early January when most regions recorded record mild temperatures.
Weather forecaster NatGasWeather said Wednesday in a blog on naturalgasintel.com:
“Overnight data shows very low nationwide demand over the next three days, with less demand this weekend and early next week, but still strong demand from January 26-31. However, the prospects in the latest model run were simply less impressive, as they were less aggressive towards the amount of cold weather entering the United States and the progression of sub-zero air to the southern and eastern United States. ”
With these forecasts fluctuating wildly, traders are also bracing for what the U.S. Energy Information Administration may report as the latest weekly withdrawals from utilities for heating purposes.
Source: Gelber & Associates
Utilities last week withdrew 71 bcf, or 1 billion cubic feet, from storage, less than half of levels typical for this time of year, as warmer weather cut demand for heating, according to a Reuters poll on Wednesday. Highly sexual
Heating degree days (HDD) were about 152 last week, less than the usual 194 HDD in 30 years, according to Reuters-affiliated data provider Refinitiv. Used to estimate the heating needs of homes and businesses, HDDs measure the number of degrees the average daily temperature drops below 65 degrees Fahrenheit (18 degrees Celsius).
The latest draw compares to a pull of 203 bcf for the same week a year ago and an average decrease of 156 bcf due to storage over a five-year period (2018-2022). In the week ending Jan. 6, the utility added 11 bcf of gas to its storage. This was his only recorded storage injection in January, according to federal energy data.
Forecasts for the week ending Jan. 13 put stockpiles at 2.831 trillion cubic feet, about 1.6% above the five-year average.
Despite strong weather and a lack of fundamental support, gas’s technical charts show the market could not only survive the $3 test, but recover closer to the $4 level. .
Sunil Kumar Dixit, Chief Technical Strategist at SKCharting.com said:
“This requires a bounce from the support areas of $3.29 and $3.18. On the upside, we expect the price to stabilize and recover towards $3.55, followed by $3.77 and $4.05. increase.”
Disclaimer: Bharani Krishnan brings diversity to the analysis of any market using different perspectives other than his own. In order to remain neutral, he sometimes presents dissenting opinions and market variables. He does not hold positions in the commodities or securities he writes about.
