SMC NatGas Weekly Summary

Summary for Week Beginning April 25, 2021

 

Current Situation

In our last report, dated April 18, 2021, we noted that the NYMEX natural gas futures market was resting about 15 cents higher than the previous week, at $2.68, after a week where the market logged some sharp upside reversal movement from a low of $2.453 on April 6. We considered this upside movement to be our anticipated first rally wave of the new April-June pre-summer season. We looked for this wave to continue within seasonal tendencies and thus continue higher into at least late April or early May, and we still looked for the supply/demand (as indicated in the EIA Storage Report) and weather as being the most influential fundamental factors on natural gas futures.

As to how the latest week turned out, the week started out with good follow-through upside that extended our first pre-summer rally wave another six cents to as high as $2.759 on Tuesday. It then lost these early week gains in a drop back to $2.657 before the Thursday EIA storage report. The storage report was bullish with 11 Bcfs fewer injections than expected, and along with a tighter-looking weekly supply/demand indicator, the market popped to recoup Wednesday’s losses and extended the rally to $2.779. Surprisingly, selling resumed on Friday and the market fell back to close unimpressively at $2.73. From a seasonal standpoint, weekly movement served to extend our first rally wave of the pre-summer season by as much as 8 cents, but Friday’s close, 5 cents off the high, indicated a loss of upward momentum.

To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about 3 cents above where it left off at $2.707 and fell to the low of the week on Thursday morning, at $2.657. It then rose to the high of the week later on Thursday morning, at $2.779, and fell back somewhat to close the week 5 cents higher than the previous week, at $2.73.

Factors Affecting the Market — Summary

  • Supportive: storage; oil; seasonal forces
  • Neutral: supply/demand; cash; weather; tech considerations
  • Negative: N/A

Conclusion

As to how April-June pre-summer seasonal movement is turning out, we consider that the first upward wave of the pre-summer season became operational with the sharp recovery movement off the April 6 low of $2.453. This first upward wave of the pre-summer season has now endured almost three weeks and has extended almost 33 cents, from $2.453 to as high as $2.779 on April 22.

At this point, we have moved into that late April-May window when first upward waves tend to peak. As such, we think it could top out at any time. In this regard, we thought it notable that the market was not able to extend much more after Thursday’s bullish storage report. Essentially, the report showed a surprisingly low storage injection and confirmed the much tighter supply/demand of the previous report. We would have thought that the market would have achieved at least the $2.80s, but instead, it extended only another couple of cents, to $2.779, and then actually fell back to $2.73 on Friday to close the week. Thus, unless we see some renewed upside momentum early in the coming week, Thursday’s $2.779 looks to be an early candidate for the peak of our first upward wave.

As to the coming week, the NYMEX natural gas futures market is currently resting about 5 cents higher than the previous week, at $2.73, after a week where the market engaged in some upside follow-through movement that extended the three week, first pre-summer seasonal rally by about 8 cents, to a new high-water mark of $2.779, only to fail to react significantly to a bullish storage report and fall back to close the week with only modest gains. While bullish trends in storage and supply/demand still look favorable for more upside, last week’s sluggish market conclusion would indicate that our rally is close to an end. We still look for the supply/demand (as indicated in the EIA Storage Report) and weather as being the most influential factors for the coming week.

 

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