Summary for Week Beginning June 20, 2021

Current Situation

In our last report dated June 13, we noted that the NYMEX natural gas futures market was 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 and then dropped to verify support at $3.033. It then proceeded to move progressively higher through the week to a high of $3.33 and a strong close just below $3.30. We considered that the market was three weeks into a typical second pre-summer rally phase that had covered 50 cents, thus far. We also considered that it has been driven mostly by a solid 383 bcf year-on-year storage deficit along with supply/demand and temperature forecasts that have largely been serving to preserve that deficit. In looking ahead, we noted that temperatures and supply/demand were not all that bullish looking, and so we suspected that some big market swings to “back and fill” might be on tap.

As to how the latest week turned out, the market opened about two cents higher to start the week at $3.315 and then rose to extend the high-water mark of our second pre-summer rally phase, from $3.33 to $3.369 by Monday night. It then lost its footing in the face of a bearish shift in 6-10 and 8-14-day temperature forecasts and fell all the way back to a low of $3.187 before Thursday’s EIA storage report. While the storage report was somewhat bullish from an expectations standpoint, the bearish weather appeared to prevent much recovery and left the market drifting even a little lower down to $3.166 on Friday morning. Essentially, we did in fact end up with the “back and fill” movement that we suspected might occur.

To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about two cents above where it left off at $3.315 and rose to the high of the week on Tuesday morning at $3.369. It then fell to the low of the week on Friday morning at $3.166 and closed the week about eight cents lower than the previous week, at $3.215.

Factors Affecting the Market – Summary

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

Conclusions

As to how April-June pre-summer seasonal movement is turning out, the first upward wave 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. 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 four weeks into a second upward wave and achieved a total upside thus far of 54 cents off the $2.832 pullback low to last week’s high-water mark of $3.369.

As to how our ongoing second upward wave is doing, 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, 18 cents to $3.33 in the third week, and now four cents to $3.369 in our just completed week. We had said last week that supply/demand and weather fundamentals hadn’t really been all that bullish yet and that if such fundamentals stayed relatively subdued for the near term, we could see some big swings to “back and fill” in the week ahead. This is, in fact, what happened last week as a bearish shift in temperature forecasts triggered a 20 cent market drop from Tuesday morning’s new high of $3.369 down to $3.166 on Friday morning.

Seasonally, it is conceivable that last Monday’s high of $3.369 will end up standing as the final high of our second pre-summer upward wave. But as we’ve said, the strong tendency is for the magnitude and endurance of second pre-summer upward waves to be determined by how the supply/demand and July temperature forecasts are looking by the end of June. Thus, if temperature forecasts flip back to show a bullish temperature pattern for July, there are still a couple more weeks in our seasonal window to recoup last week’s losses and go on to new highs above $3.369.

As to the coming week, the NYMEX natural gas futures market is currently resting about eight cents lower than the previous week at $3.215, after a week where the market opened about two cents above where it left off at $3.315 and rose to a high of $3.369 before dropping back to a low of $3.166 and a weekly close only five cents from the low. As mentioned above, we consider that July temperature forecasts and the supply/demand are the two factors most influencing the market and with temperature forecasts looking bearish, last week’s pullback may have somewhat further to go. As to all factors affecting natural gas futures, please see the summary box above.

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