A tough day in the market for the natural gas bulls as a slightly supportive storage withdrawal failed to inspire further buying.
The spot May 16 contract for a third time over the past month stalled in the lower-2.000 area resulting in today's post-EIA selloff back lower. The natural gas market is currently trading in the summer doldrums, a relentless sideways range which should chop the bulls and bears to death over the upcoming weeks of trade.
Today's 3 Bcf withdrawal as reported by the EIA for week ended 04/08 showed increased end of winter heating demand but not enough to overshadow record high storage. Storage at the end of March ended up being the second highest on record at 2,768 Bcf, 4 Bcf short of last year's record.
The EIA has forecast end of October 2016 storage with reach a new all-time high above 4,100 Bcf, well above this past winter's record high 4,009 Bcf. Countering this forecast is Bentek with forecast 3,900 Bcf of gas in storage at the end of this year largely due to increased summer power generator demand.
U.S. production has been gradually falling from 73.8 Bcf per day (dry-gas), a record high reached in February. The latest Bentek data estimated current production at 71.1 Bcf per day. The lagging indicator which is production may finally be catching up with the leading indicator which is the falling rig count.
Power generator demand over the upcoming summer should be very high possibly topping the 30 Bcf per day level for the first time ever. Increased power generator demand coupled with the possibility for a continued decrease in U.S. production could be tilt the market trend toward the bullish side later this year.
Near term, once the summer rally ends, a retest of the 18-year price low set in early-March is expected. As shown on past reports, the average price break from the summer high to low following an El Nino winter has been 34% over the 5 years shown.
Whether or not a new low is set later this year will depend on upcoming summer cooling demand for natural gas and how production fares. Regardless of the outcome, whatever price low does form later this year should be a multi-year low for natural gas prices.
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