SMC NatGas Weekly Summary

Summary for Week Beginning June 13, 2021

 

Current Situation

In our last report dated June 6, we noted that the NYMEX natural gas futures market was resting about 11 cents higher than the previous week, at $3.097, after a week where the market first gapped up to open the week at $3.044 and then spiked fairly quickly to a high of $3.15 on Tuesday morning. Some wide-swinging consolidation then brought it down to $3.01 for a weekly close back up to just above the midpoint. Seasonally, the week’s movement served to confirm that our “good pullback” phase bottomed at $2.832 on May 24 and our anticipated second upward wave of the pre-summer season had become operational with a high-water mark thus far of $3.15. We again looked for temperature forecasts and the Thursday storage report to be the main factors influencing the market in the next week.

As to how the latest week turned out, early-week weather forecasts showed a bearish shift in 6-10 and 8-14-day temperature forecasts, and so the market fell back from its open at $3.109 to as low as $3.033 on Monday morning. Following that low, bullish market participants began to muscle the market all the way to a new high-water mark of $3.198 before Thursday’s EIA storage report. The market reacted by falling back to $3.131 after the report, but again, participants primarily used after-hours trading to muscle the market all the way up to a new pre-summer high-water mark of $3.33 by Friday afternoon.

To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about one cent above where it left off at $3.109 and fell to the low of the week on Monday morning at $3.033. It then rose to the high of the week on Friday afternoon at $3.33 and closed the week about 20 cents higher than the previous week, at $3.296.

Factors Affecting the Market – Summary

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

Conclusions

As to how April-June pre-summer seasonal movement is turning out, the first upward wave of the April-June pre-summer season became operational with the sharp recovery movement off the April 6 low of $2.453.  This first upward wave endured six weeks, covering about 70 cents, and peaked Monday, May 17 at $3.15.  Thus, it played out consistent with the price and timing expectations associated with a scenario involving a bullish supply/demand. Subsequently, we saw a “good pullback” phase get underway in the form of a strong downward reversal off $3.15 that fell about 32 cents to reach a low point of $2.832 on May 24.  With the next week’s pop back above $3.00 and continued upside since then, we consider that the market is now well along in a second upward wave. It has now endured three weeks and achieved a total upside thus far of 50 cents off the $2.832 pull-back low.

As to how long our second upward wave will last, gains off the pullback low of $2.832 on March 24 were 21-cents in the first week to $3.042, 11 cents to $3.15 in the second week, and 18 cents to $3.33 in the third week (last week). We carefully noticed last week that gains generally occurred in after-hours trading with regular session activity consisting more of pullback and consolidation as players adjusted to the much higher levels. This type of “muscling” activity to achieve gains in thin trading is often seen during seasonal run-ups (like we are having now), threatening hurricanes and arctic outbreaks, and tends to result in what we call a blow-off. What has been interesting, so far, is that supply/demand and weather fundamentals haven’t turned all that bullish yet. So if we do see supply/demand tighten back up and July looks to be blistering hot, we may see the market eventually progress beyond $3.50 and significantly more. In the meantime, if such fundamentals stay relatively subdued for the near term, we could see some big swings to “back and fill.”

As to the coming week, the NYMEX natural gas futures market is currently resting about 20 cents higher than the previous week, at $3.296, after a week where the market opened about where it left off at $3.109, dropped to verify support at $3.033, and then proceeded to move progressively sharper through the week to a high of $3.33 and a strong weekly close just below $3.30. We consider that the market is moving upward in a typical pre-summer rally phase that is driven mostly by a solid 383 Bcf year-on-year storage deficit along with a supply/demand and temperatures that are serving to largely preserve that deficit. As to all factors affecting natural gas futures, please see summary box above.

 

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