Natural Gas: Assessing If We Are Close To A Bottom

Summary

We expect +60 Bcf for the week ending Aug. 9. A build of +60 Bcf would be compared to the +49 Bcf five-year average and +33 Bcf last year.

We believe natural gas prices have bottomed in the near term. Weather models continue to support a warmer than normal outlook, which should keep injections at bay.

The only difference we see in the model forecasts right now is that GFS-ENS expects the bullish weather to be temporary while ECMWF-EPS is bullish throughout the next 15 days.

But because we believe prices have bottomed, we are now back to 100% long on UGAZ.

Overall, given how skewed positioning is in the short term, we favor the long side. We think a pop to $2.3 is not out of the question.

This idea was discussed in more depth with members of my private investing community, HFI Research Natural Gas. Get started today »

Welcome to the bottom edition of Natural Gas Daily!

Housekeeping item first.

We expect +60 Bcf for the week ending Aug. 9. A build of +60 Bcf would be compared to the +49 Bcf five-year average and +33 Bcf last year.

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Bottomed?

We believe natural gas prices have bottomed in the near term. Weather models continue to support a warmer than normal outlook, which should keep injections at bay. Our implied EOS is still elevated at 3.715 Tcf, but the fundamental surplus at least in the near term has narrowed.

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The only difference we see in the model forecasts right now is that GFS-ENS expects the bullish weather to be temporary while ECMWF-EPS is bullish throughout the next 15-days.

This subtle difference could be the key to whether or not September tests $2.30 or languishes below $2.20 for the time being.

But because we believe prices have bottomed, we are now back to 100% long on UGAZ. We are looking for a quick trade on this one with the market pricing in the bullish weather in the coming week.

Technically speaking, we also like the set up. Today’s pullback looks like a retest of the falling wedge breakout. Technical upside suggests a move to $2.30.

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Turning over to the fundamentals, natural gas production has peaked at ~92 Bcf/d in the near term. Most of the production gain came from Northeast, but the recent elevated levels couldn’t be maintained.

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Total gas supplies have also dipped thanks to lower Canadian gas net imports. Once LNG maintenance is over, the LNG export increase should help tighten balances.

Overall, given how skewed positioning is in the short term, we favor the long side. We think a pop to $2.3 is not out of the question.

Source: SeekingAlpha.com

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