Natural Gas Corner - Market Update - The Month In Review

Natural gas prices have again turned back  lower following a 4-week rally which lifted the spot market higher by just over 27%.  The ensuing sell off has erased roughly half the previous 4-week gains.

The market has  been  supported by  pockets of above-normal temperatures along the eastern half of the U.S.  Utility switchover from coal  to natural gas  due to lower prices and coal  plant  retirements has been one of the highlights of 2015 in the  natural gas market.  Year-over power generator demand for natural gas which was a record high 18.5% during  January and February has since declined to 11% during early-May but remains a positive factor.  The estimated 5-6 Bcf  (billion cubic  feet) per day  oversupply of natural gas in the marketplace  that  existed in late-2014 has since declined to 1-2 Bcf per day due in part to higher utility demand.

The fund long position in the natural gas market  has  nearly doubled over the past 2 weeks, but at 125,755 contracts remains well below the record high of 488,901 contracts reached in February 2014.  Funds buying has also been and could continue to be a supportive factor for the market as they attempt to play typical price strength during the summer months.

Dry-gas production in late-April reached a new all-time high of 73.8 Bcf per day according to a Bentek  report.  Production continues to increase even with the natural gas rig count hovering near an all-time  low of 222 for week ended 05-22-15 as existing wells and more efficient operations have kept total production high.  At some point, possibly later this year, the declining rig count could affect production.

Storage injections also remain high with the  first 7 storage injections of the 2015 injection season totaling 528 Bcf.  This is 155 Bcf or 42% higher than the 5-year average.  The deficit of gas currently in storage relative to the 5-year average has narrowed from 6.5% to 1.7% according to the EIA.

Summer weather forecasts have turned hotter but for the most part remain normal or slightly below normal across much of the  U.S. during June and July, not particularly supportive for natural gas prices.

Seasonally, the natural gas market tends to have two annual price lows.  The first price low typically  forms during the  months of February-April.  For 2015, the post-winter price low was set on April 27th.  A secondary price low later forms usually during the months of August or September.  The secondary seasonal low over the  past 3 and 5 years has been the lowest price level for the year and the optimal time to add to forward coverage in the market.

It is  during the second expected seasonal low that coverage for winter 15-16 should be completed adding  to 2016 and longer dated coverage as needed.