SMC NatGas Weekly Summary

Summary for Week Beginning July 11, 2021

 

Current Situation

In our last report dated July 4, we noted that the NYMEX natural gas futures market was 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 and then rose to the high of the week on Wednesday afternoon at $3.814. It then lost upward momentum (after a bearish storage report) and closed noticeably off the high. Seasonally, we noted that after six weeks and 98 cents of our second pre-summer upward wave, we expected the pre-summer seasonal window to close on the first business day after the July 4 holiday consistent with normal seasonal timing. As such, we looked for downside reversal movement early in the next week.

As to how the latest week turned out, the market opened about where it left off to start the week at $3.704 and headed higher in a gradual but concerted manner over the Monday holiday, to achieve a new marginal high-water mark of our second pre-summer upward wave of $3.822 on Monday evening. It then fell apart as normal business resumed on Tuesday, July 6 and engaged in the downward reversal activity that we anticipated, to as low as $3.52 before the Thursday EIA storage report. With that 30-cent drop, we considered that our anticipated first summer decline phase had become operational. The Thursday EIA storage report was surprisingly and bullishly low showing a build of only 16 Bcfs. This was 18 Bcfs below expectations and 6 Bcfs below the lowest estimate in the weekly storage poll we watch. The market reacted with a good pop-up to the lower $3.70s, but with the market unable to add to that recovery on Friday, we still consider a first summer decline phase to be operational.

To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about where it left off at $3.704 and rose to the high of the week on Monday evening at $3.822. It then fell to the low of the week on Wednesday morning at $3.52 and recovered somewhat to close the week about three cents lower than the previous week, at $3.674.

Factors Affecting the Market

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

Conclusions

With the appearance that our second upward pre-summer wave concluded right on cue on Tuesday, July 6, we are putting the final wrap on the April-June pre-summer season (in the following paragraph).

As to how pre-summer seasonal movement turned out, in looking at the daily continuation chart, 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 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, which 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 after that, the market embarked on a six-week second upward wave. It ultimately achieved a total upside of 99 cents off the $2.832 pullback low with a high-water mark of $3.822 on Tuesday, July 6. In our June 1 report, we thought that the second upward wave would be the higher of the anticipated two upward waves and that if the supply/demand balance and/or temperatures became quite bullish by the end of June, we thought the $3.50 mark, or higher, was possible and that it would have the endurance that could take it into the first several days of July. As such, the actual movement of this second wave was very much in line with these expectations.

As to the new July-September summer seasonal period, the market went into a downward reversal last Tuesday, July 6, right after setting an apparent final high of our second pre-summer upward wave, and as such, we consider that a first summer decline is now operational. We are not expecting this wave to last all that long (into mid-July), and the question already is whether the 30-cent decline last week from $3.822 to $3.52 on Wednesday morning constitutes the entirety of the move. Our thought at this point is that with the market unable to rebound more than it did after such a bullish EIA storage report on Thursday, it will at least try to revisit that $3.52 low point in the coming week. As mentioned in last week’s recommendation section, we think the $3.30s are probably the best this first decline can do before a midsummer rally gets underway.

As to the coming week, the NYMEX natural gas futures market is currently resting about three cents lower than the previous week, at $3.674, after a week where the market opened about where it left off, at $3.704, before rising to the high of the week on Monday evening at $3.822. It then engaged in a market reversal that took it down to $3.52 on Wednesday, followed by a late-week recovery on a very bullish storage report. As mentioned above, with the next storage report not anticipated to be all that bullish, we’d look for the market to at least make an attempt to challenge last week’s low of $3.52. 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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