Natgas Production Growth Potential Has Been Severely Damaged

SUMMARY

  • Consumption-wise, ECMWF 00z Ensemble is bearish vs yesterday's 12z results. In absolute terms, ECMWF model is mostly in line with the latest GFS model.
  • Projected TDDs are trending higher and remain above the norm (+20.5%) as well as above last year's level (+7.4%). Consumption is projected to increase by 4.5% over the next seven days.
  • So far, LNG feedgas flows are holding above 4.0 bcf/d; Production has been trending lower over the past ten days (slowly). It is currently estimated at 87.3 bcf/d.
  • Our storage level outlook was revised lower (vs Monday's results), but mostly in the mid-term. Currently, EOS storage index is at 3,869 bcf (111 bcf below market expectations).
  • In the short-term, the bulls are in control. A break above 1.720 could lead to a gain into the 1.750-1.790 range. A break below 1.670, could cause a fall into the 1.640-1.590 range. In the long-term, however, natgas is still trading within the descending channel.

TRADING VIEW

Exposure

  • We currently have no active positions in progress;
  • We are planning to re-enter the market in July or August.
  • The bears have lost control (at least, in the short-term).
  • As long as natgas (Aug. contract) is trading above 1.673-1.670, the trading bias will remain bullish.
  • Today’s fundamental signals are neutral-to-bullish.
  • A break above 1.720 could lead to a gain into the 1.750-1.790 range.
  • A break below 1.670, could cause a fall into the 1.640-1.590 range.
  • It makes sense to buy the dips - particularly near 1.650 and especially in the 1.630-1.600 area.

Bullish factors

  • Projected TDDs are trending higher and remain above the norm (+20.5%) as well as above last year's level (+7.4%).
  • Natgas consumption (7-day average) is projected to increase by 4.5% over the next 7 days (from 74.8 bcf/d today to 78.1 bcf/d on July 7).
  • Natgas production growth potential has been severely damaged. Daily production rate is not expected to set a new all-time high for several years. EIA expects dry gas production to continue falling until March 2021CAPEX remains depressed.
  • Annual storage "surplus" is projected to shrink by -131 bcf by July 31.
  • Storage "surplus" vs 5-year average is projected to shrink by -57 bcf by July 31.
  • EOS storage index is 111 bcf below market expectations.
  • Weekly expectations gap for the next three reports is bullish.
  • The net impact of non-degree-day factors is bullish (vs 2019) - primarily thanks to robust coal-to-gas switchingElectricity generation from renewable sources will be getting weaker from now on (until September) due to seasonal factors.
  • In the short-term, the bulls are in control. As long as natgas (Aug. contract) is trading above 1.673-1.670, the trading bias will remain bullish.
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Disclosure: No open positions. We are planning to re-enter the market in July or August.

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