SMC NatGas Weekly Summary

Summary for Week Beginning June 27, 2021

 

Current Situation

In our last report dated June 20, we noted that the NYMEX natural gas futures market was resting about 8 cents lower than the previous week, at $3.215. This followed a week where the market opened about 2 cents above where it left off at $3.315 and rose to a new pre-summer seasonal high of $3.369 before dropping back to a low of $3.166 and a weekly close only 5 cents from the low. We considered that the market was four weeks into a typical second pre-summer rally phase that had covered 54 cents thus far. In looking ahead, we said we appeared to be experiencing some back and fill movement that we had anticipated with the rather subdued temperature forecasts. While we thought there was room for a little more pullback, we said there were still a couple of weeks in the seasonal window for any bullish shifts in temperatures to send the market right back up to set new highs above $3.369.

As to how the latest week turned out, the market opened down about 1 cent to start the week at $3.206 and did, in fact, extend the previous week’s pull back a little further to the low of the week at $3.137 on Monday morning. It then appeared to focus on an expected low storage number for Thursday (as compared to last year’s big injection of 115 Bcfs) and rose rather quickly to not only recoup prior week losses but also set a new pre-summer high of $3.383 on Wednesday morning. The storage report was very bullishly 11 Bcfs below expectations at 55 Bcfs, and the market took off to break above the $3.396 from last October and then on to as high as $3.508 on Friday morning. With the break above $3.396, the market is now at the highest level since January of 2019 and pointed higher. As such, our second upward wave of the pre-summer season has now made new upward progress for five weeks in a row.

To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about 1 cent below where it left off at $3.206 and fell to the low of the week on Monday morning at $3.137. It then rose to the high of the week on Friday morning at $3.508 and closed the week strong, about 28 cents higher than the previous week, at $3.496.

Factors Affecting the Market – Summary

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

Conclusions

As to how April-June pre-summer seasonal movement is turning out, looking at the daily continuation chart, the market movement is within expectations. As such, 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 to peak on Monday, May 17 at $3.15. Thus, it played out consistently with the price and timing expectations associated with a scenario involving a bullish supply/demand. Subsequently, we saw our anticipated “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 five weeks into our anticipated second upward wave. It has now endured 5-weeks and achieved a total upside thus far of 68 cents off the $2.832 pullback low to last week’s high-water mark of $3.508.

As to how our 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, 4 cents to $3.369 in the fourth week, and now 14 cents in our just completed fifth week. Last week’s sharp upside followed a “back and fill” week and served to burst the market decisively through long-term resistance in the upper $3.30s to what appears to be the next area of resistance at $3.50.

Seasonally, we are about to enter the last three days of June and the first few days of July. We have indicated that the pre-summer seasonal window historically closes by the first business day after July 4. As such, we are in the “bewitching hour” this coming week and look for our ongoing, second upward wave to have concluded by Tuesday, July 6. The year-over-year storage deficit has been growing rapidly the last couple of weeks due to an EIA adjustment, tightening in the supply/demand, and a couple of weeks with hotter summer weather than last year. As such, even while the normal tendency is for market upside in June, these supportive fundamentals are adding some juice to this and creating a blow-off stage in the market upside. Should currently lackluster July temperature forecasts shift bullishly next week, this blow-off could attempt the upper $3s, but otherwise, we are not looking for these other fundamentals to be trending all that bullishly in the next storage report, and we thus think our second upward wave could top out at any time.

As to the coming week, the NYMEX natural gas futures market is currently resting about 28 cents higher than the previous week at $3.496, after a week where the market opened about 1 cent lower than where it left off at $3.206 and dropped back to $3.137 Monday morning before moving sharply higher through the week, in stair-step fashion, to a high of $3.508 on Friday. All eyes will be on July temperature forecasts and the Thursday storage report. As to all factors affecting natural gas futures, please see the summary box above.

 

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