SMC NatGas Weekly Summary

Summary for Week Beginning July 4, 2021

 

Current Situation

In our last report dated June 27, 2021, we noted that the NYMEX natural gas futures market was resting about 28 cents higher than the previous week, at $3.496 after a week where the market opened about one cent lower than where it left off at $3.206, then 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. We considered that the market was five weeks into what was becoming a strong, second pre-summer rally phase covering 68 cents thus far. In looking ahead, we said we were about to enter the last three days of June and the first few days of July when the pre-summer seasonal window historically closes by the first business day after July 4. As such, while we thought our ongoing blow-off might have a chance to attempt the upper $3s, we considered that our second upward wave could top out at any time.

As to how the latest week turned out, the market opened about one cent higher to start the week at $3.502 and managed to continue the ongoing upward blow off another 30 cents to as high as $3.814 on Wednesday, June 30. The Thursday EIA storage report showed a surprisingly high storage build of 76 Bcfs that beat expectations by eight Bcfs. With this indicating less tightness in the supply/demand balance, the market struggled to resume its upward momentum for the remainder of the week, eventually closing the week about 11 cents off the $3.814 Wednesday high at $3.70. Friday’s NWS temperature forecasts weren’t helpful from the bullish standpoint either, as there was quite a shift that expanded below normal temperatures through the eastern half of the U.S. and appeared to generally keep them in place through the remainder of July.

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 $3.502 and fell slightly to the low of the week on Sunday evening at $3.485. It then rose sharply to the high of the week on Wednesday afternoon at $3.814 and fell back somewhat to close the week about 20 cents higher than the previous week, at $3.70.

Factors Affecting the Market – Summary

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

Conclusions

As to how April-June pre-summer seasonal movement is turning out, looking at the daily continuation chart, we consider that 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 and peaked Monday, May 17 at $3.15. 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 six weeks into our anticipated second upward wave. It has now endured six weeks and achieved a total upside thus far of 98 cents off the $2.832 pullback low to last week’s high-water mark of $3.814.

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; four cents to $3.369 in the fourth week; 14 cents to $3.508 in the fifth week; and now 31 cents to $3.814 in our just completed sixth week. We’ve now experienced a total of six straight weeks of new upward progress totaling 98 cents and have seen the second upward wave extend about as historically late as any second wave.

Seasonally, in our June 27 report, we discussed how this year’s strong, second pre-summer wave is extending into the last several days of June and the first few days of July. As such, we indicated that the pre-summer seasonal window historically closes by the first business day after July 4. Thus, we considered the market to be in the “bewitching hour” and looked for a final high-water mark by Tuesday, July 6. We also thought if the bullish mentality held together, the magnitude of this wave could go on beyond the $3.50 level to attempt the upper $3s in these last few days. As it is turning out, the high-water mark extended to $3.814 on Wednesday, June 30, and we consider this new high to be a good candidate for the final high of this second pre-summer wave. Because we often see seasonal reversals right after a major holiday, a downward reversal is what we anticipate with our current situation.

As to the coming week, the NYMEX natural gas futures market is currently resting about 20 cents higher than the previous week, at $3.70, after a week where the market opened about one cent higher than where it left off at $3.502. It then rose to the high of the week on Wednesday afternoon at $3.814 before losing upward momentum after a bearish storage report and closing noticeably off the high. With seasonal timing, we look for downward reversal movement early in the coming week. As to all factors affecting natural gas futures, please see the summary box above.

 

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The market recommendations contained in this letter represent the general opinions of the author and are not considered specific for any of the readers receiving our work. There is no guarantee of a successful outcome on any actions taken by readers. Such opinions are subject to change without notice. Principals and employees of SMC may or may not trade in the commodities discussed in this letter, taking positions similar or opposite to the positions discussed herein. The information contained in this letter is taken from sources we believe to be reliable, but it is not guaranteed by us as to the accuracy or completeness thereof and is sent to you for information purposes only. Commodity trading involves risk and is not for everyone. Charts included in this report were obtained and used with permission from Barchart.com. Copyright protection is applicable.  Any distribution outside the purchasing entity is prohibited without prior arrangements with SMC.

 

 

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