Wholesale Natural Gas is currently trading at $3.042 per DTH

As you can see from the lead in, prices have popped up again this week.  Just like in Casablanca we will looking at the usual suspects this week – weather and production.   Every weather chart that NOAA puts out for 2017 is again showing red, including the most recent 6-10 day chart.

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As of today the extreme heat is still concentrated in the SW, West Texas and part of the plains.  However, at the moment, Tuscaloosa (Roll Tide) and Madison (Go Badgers) are both showing the same temperature.  But despite these much more mild current temperatures in the US, especially in the SE, we are still not seeing the injections into gas storage that we would like to be seeing right now.  While today’s report of a +46 BCF storage build (slightly below expectations) was 5 BCF stronger than last year it was also -26 BCF off the 5 year average.  This still leaves us -319 BCF behind last year’s pace.  I am not sure yet how other analysts are viewing the report, but to only inject +46 BCF into storage when much of the air conditioning demand is idling is very disappointing.

Certainly the warmer weather forecasts along with gas production concerns played a major role in pushing the July gas contract off of its recent $2.877 /Dth low to its close yesterday at $3.067 /Dth.  With the August contract moving to the front position there was an attempt to push higher but the Bulls just could not gain ground today so we saw the August contract close at $3.042 /Dth in its first full day as prompt.

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With the markets moving up we saw the 2017-18 Winter strip gain 9.8 cents this week to $3.272 /Dth while the 2018-19 Winter strip sits at $3.053 /Dth unchanged for the week.  The 2018 Calendar strip was up 2.7 cents this week to $2.991 /Dth while the 2019 Calendar strip was at $2.849 /Dth off 2.2 cents.

I will be on vacation next so I would like to wish everyone a Happy July 4th Holiday.

 

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

Wholesale Natural Gas is currently trading at $2.894 per DTH

Too hot to fly.  Too hot to fly?  You know it just takes me a bit to wrap my head around that statement.  Most of us know that electronics can have problems with the heat.  They eventually had to put air conditioning into our tanks, not because of crew comfort, but because the electronics that ran everything from the laser range finder to the gun stabilization system would fry out after a few days in the desert.  But too hot to fly?

Fortunately, that extreme heat is confined into the US southwest, although some of it was creeping into west Texas and the plains states today.  The east continues to be cooler than normal thanks now to Tropical Storm Cindy.  Nevertheless, I was piqued by a gas market comment that I have seen every week for about six weeks now.  “Milder weather should allow natural gas inventory building to ramp up the pace.”  We certainly got a hint that this might happen the week of Memorial Day, but today’s storage build of +61 BCF has to be characterized as another disappointment regardless of “expectations”.

As I mentioned last week, people have been playing up the production gains out of the Permian and the Marcellus basins.  Those statements are usually accompanied by a comment about how we have doubled the number of drilling rigs in the last year.  But here is the chart that tells the rest of the story:

As you can see, we have indeed doubled the drilling rigs, but that still puts us well below the number of rigs that were drilling when we were adding abundant new supplies.  Moreover, while drilling rig efficiency is improving it is not improving by the leaps and bounds of a few years ago.   So again, where is all of this new gas production the market is expecting and when will it show up?  Or is any new production going to be soaked up by the increasing commercial, industrial and export demand we are seeing?  As always, the weather will play a major factor, but it continues to be a wild card.  NOAA is still forecasting a hot July, but then again it forecasted a hot June and we have seen how that has worked out for just about everywhere except the US Southwest.

On Monday the market gapped lower on forecasts for continued mild weather, but it has since struggled to build momentum for a further move in either direction.  Again, while today’s injection was slightly above expectation it lost ground against the year-on-year inventory and the 5 year average inventory, so the July contract closed today at $2.894 /Dth, up 0.1 cents for the day.

This week’s move lower translated into the 2017 summer strip losing 8.9 cents to $3.031 /Dth and the 2017-18 winter strip declining 11.3 cents to $3.174 /Dth.  Meanwhile, the 2018 calendar strip dropped 6.8 cents to $2.964 /Dth while the 2019 calendar strip gained 0.2 cents to $2.870 /Dth.

On the change chart we can see that the front of the curve has now moved below the February 23rd low that we had been tracking.   There are at least two more things to keep an eye on in coming weeks.  First, the last two weeks of June last year were hot with very low storage injections.  If we do not see significant additions to inventory versus last year in the next two weeks the bears are going to have a serious problem.  Second, albeit a longer term consideration, is that oil closed at $45.22 a barrel today which is well below the $50 that analyst claim the shale oil plays need to be economic.  Why is that important?   Oil shale production is important because a lot of associated natural gas comes from those oil fields.  A number of the Houston analysts have said that we will not have real growth in gas production with oil below $50 a barrel.

Do you ever feel like you are playing roulette and your not sure where that spinning wheel is going to land?  Stay tuned.

 

Have a great weekend.

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

 

Wholesale Natural Gas is currently trading at $3.056 per DTH

The 90 degree weather has left Wisconsin so we are back to a very nice 84 F with a light breeze.  Today was so nice that Nancy and I decided to do our first outdoor swim of the season up at Blue Mounds State Park.  It turns out that the recent hotter weather has the water at a very comfortable, albeit cool, temperature.  Yep, summer is definitely here.

One of my friends sent me a fluff piece this week that focused on the increased gas production from the Marcellus and Permian basins.  If it were talking about oil, I would say that the article was gushing.  However, it is important to remember that natural gas production is like trying to swim upstream in a strong current.  While those two basins may in fact be producing at record levels there are literally dozens of reservoirs that are depleting.  You can think of a natural gas well as similar to a balloon.  When the balloon is under pressure it wants to release all of that air back out in an almighty rush.  If it was not for the control equipment a gas well would do the exact same thing.  Thus the highest pressure and the greatest production comes from a gas well on the first day of production.  The bottom line is that gas wells deplete very quickly, so in order to increase production you have to constantly replace depleted production before you can make any gains.  This is why someone can right a factual story about leaps in production in a couple of basins while overall production declines or grows much more moderately.

I mention this because we saw a very disappointing +78 BCF storage injection number today which again suggests that gas production is still not coming near to expectations.  And to pile on, NOAA has refreshed their July forecast and they still are insisting that most of the nation will experience a hot July.

Last week’s storage number had us testing the $3.00 support level this week and we even got under $3.00 for a couple of days.  However, today’s +78 BCF surprised the market and quickly pushed us from $2.95 /Dth in the minutes prior to the storage release to $3.03 /Dth immediately following the release.  The July contract never looked back and managed to gradually uptick and finish the day at $3.056 /Dth, up 12.3 cents.

Just as the storage surprise pushed the July contract back above $3.00, it also reset most of the strips close to last week levels.  Week-on-week the Summer 2017 strip finished at $3.12 /Dth, up 0.9 cents, while the 2017 winter strips gained 0.1 cents to $3.287 /Dth.  Meanwhile the 2018 calendar strip faded 0.3 this week to $3.032 /Dth while the 2019 calendar strip gained 0.4 cents to $2.868 /Dth.

As I said last week, if you want to see lower gas prices, then we need a strong June with a lot of gas going into the ground.  This was not a good start for that narrative.

 

Have a great weekend.

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.