Wisconsin Wholesale Natural Gas Update – June 15, 2017

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

 

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