Recent volatility in the natural gas market is the type of price action typically seen during the colder winter months, not during the heat of summer.
Focus has been on the summer forecasts which have grown progressively hotter as the market enters into the two hottest months of the year.
Summer cooling demand by power generators has exceeded expectations with June daily demand at times topping the 35 Bcf per day level. U.S. power burn during 2016 has averaged 26.1 Bcf per day, well above last year's 23.9 Bcf per day record high. This has led to lower than normal injections of gas into storage which has also been a supportive factor.
U.S. production (dry-gas) this week fell back under the 70 Bcf per day level according to Platt's which has also drawn trading focus.
The funds are back in with a vengeance actively adding to existing long positions in the market. The funds are likely going to continue to add on ensuing pull backs along with end users who missed the rally looking to add to forward coverage.
What is not being actively discussed in the large amount of gas currently in storage which has been overshadowed by weather and falling production. Current gas in storage of 3,103 Bcf is record high for this time of year and still on pace to reach last year's all-time high. With 19 weeks left in the injection season, only 906 Bcf or 47 Bcf will need to be injected into storage. Over the past 5-years, an average of 1,365 Bcf or 72 Bcf has been injected into storage over the upcoming 19 weeks.
So while this summer's rally has been extreme and injections have been lower than normal, the focus at some point, hopefully soon, will come back to storage.
Near term, weather outlooks may keep the market moving higher, but record high storage and the seasonal tendency for an end of summer price decline suggest and sizeable downside correction lies ahead in the natural gas market.
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