Natural gas runs hot relative to the fundamentals – TDS

The EIA natural gas storage report showed an injection of 16 Bcf (67 Bcf when adjusting for the PG&E accounting measure). While tighter than the expected 71 Bcf and compared to the five-year average injection of 85 Bcf for the week, the market may interpret the latest numbers as marginally loose given the recent perfect storm of idiosyncratic factors, Ryan McKay, Commodity Strategist at TD Securities, reports.

June heat front runs fundamentals

“News that the issue in the TETCO pipeline may not be resolved until September fueled the recent overshoot to north of $3.30/MMBtu, while nuclear outages, less hyrdo power amid a drought in California and one of the hottest Junes on record all combined to provide a bullish near-term outlook. Given the combination of all these bullish factors, the 67 Bcf injection appears less impressive.”

“When taking into account the extreme heat seen during the reporting period, and the forecasts for one of the hottest Junes on record, the latest injection is neutral to marginally bearish. At the same time, while power burns were up roughly 7 Bcf/d compared to the previous week, and in line with seasonal levels, they are also less impressive when taking into account the weather factor and nuke/hydro outages. This suggests tightening fundamentals have not been the prominent driver of the recent strength, and that weather has been in the driver's seat.” 

“While near-term prices could ease off the recent highs after running ahead of the fundamentals, the outlook remains supportive for prices to remain north of $3/MMBtu this summer as inventories continue to tighten.” 

“The global recovery and vaccine rollout bodes well for LNG, industrial and commercial demand, while favorable weather and a higher portion of the energy mix can still add an additional bullish layer to power demand moving forward. Inventories are on track to finish the summer season in line with the five-year average or potentially tighter which remains price supportive.”