Natural Gas Corner - Market Update - A New Bull Market Is Born

It has been a while since I have written on this blog as I have been away on work travel and vacation.

Quite a turn around in the natural gas market over the past 3 weeks as summer cooling demand finally arrived and the weather maps turned much hotter earlier than expected spiking prices higher.

There seems to be two primary outlooks on this market.  From a bullish perspective, storage injections have been lower than normal and weather forecasts call from above-normal temperatures during July and August boosting demand of natural gas for summer cooling.

Power generator demand for natural gas during 2016 has been record high with recent demand 5-6 Bcf per day above last year's level.  Upcoming summer demand over the next two-three months should easily surpass the  30 Bcf per day level.

Another supportive factor is production which had been steadily falling from the 73.8 Bcf per day high (dry-gas) reached in February 2016 to a recent low of 69.8 Bcf per day in early-June.  Production has ticked up in a recent Platt's report to 70.1 Bcf per day and could be on a upturn with the March-June price rise.

On the bearish side, storage is of course the primary factor as the market just came off the second highest end of winter storage in history at 2,468 Bcf falling 4 Bcf shy of the previous record set in 2012.  Storage injections have been lower than normal this year partly due to increased demand.  But with current storage near a record high for this time of year, much less gas needs to be injected this summer in comparison to previous summers.

During 2012, only 1,430 Bcf of gas was injected into storage during April 1st - October 31st (injection season) in comparison to 2,109 Bcf averaged over the previous 10-years.  So it is important to remember that upcoming storage injections over the next 21 weeks should be lower than in past years.

Storage at the end of the year should be near last year's 4,007 Bcf all-time high which should be a negative factor for the market.  Record high storage last year is what dropped the spot contract down to a $1.611 low in early-March.

Natural gas usage for power generator could also begin to fall as they switch back from higher priced natural gas to coal.

Seasonally, an end of summer price break is expected.  While the lows seen earlier this year may not be reached, a more advantageous level for buying long term coverage should avail itself over upcoming weeks of trade.

Longer term, natural gas has entered into a new bull market.