- The delay in reopening Freeport LNG — a bearish factor — is fueling a gas rally instead
- Henry Hub Gas broke above $10 for the first time in 14 years this week; can test the level again
- Last week against last 18 B.C. . US gas storage is estimated at 58 Bcf
Another lag in Freeport LNG’s operating yield has prompted another rally in the US, proving that it’s impossible for hedge funds to fully control matters – with the screams of a bullish market rising as bearish fundamentals strengthen . In spite of.
Gas futures on the New York Mercantile Exchange’s Henry Hub fell just 5% on the day — a relatively modest improvement — after posting the first double-digit price in 14 years Tuesday, when the $10-per-therm resistance was broken today’s standards. Since then, the market has been digging on its heels for a long time, only staging a slight recovery in the next session.
On Wednesday, when Freeport LNG extended its launch date from October to mid-November, the extremes of the market’s bullishness were on full display. The Texas-based plant, the second-largest US LNG export facility, was consuming about 2 billion cubic feet of gas per day before being shut down on June 8 by an explosion that suddenly oversupplied the market. Immediately after the blast, Henry Hub fell from a high of $9.66 to a low of $5.36 in late June of the next month.
However, by July, the front month had returned to a high of $9.41 as the increasing summer heat led to increased cooling demand and the need for air conditioning to run on gas-fired electricity. But as temperatures eased, gas futures continued to rise as hedge funds got deeper into the game for longer periods.
“Recession news doesn’t matter these days”
Dan Myers, an analyst at Houston-based gas market consultancy Gelber & Associates, said in an email to the company’s clients. Invest.com On Wednesday:
“Logical reasoning suggests that … news of a delay in resuming LNG exports from Freeport will trigger a very bearish reaction in NYMEX gas futures, but as the price is dominated by a few well-funded hedge funds largely focused on futures and options seems bearish news doesn’t matter these days.”
Myers said it’s interesting that news of the return of the Freeport terminal in October received such rapid response a few weeks ago that it lasted for days.
A similar situation arose shortly thereafter when news of Mars’ offshore oil and gas platform in the Gulf of Mexico was shut down over a leak, leading to a rally of more than $8.50 in the month ahead of Henry Hub. Still, gas futures continued to climb when it was discovered that the platform’s suspension lasted less than 24 hours.
From the looks of it, the Freeport facility won’t see any volume yields until mid-November, with daily demand likely not reaching 2.0 billion cubic feet (bcf) per day until early December. The current situation will add about 100 Bcf more to the gas storage inventory at the end of the injection season.
As dry gas production continues to climb above 98 Bcf per day and the start of the mid-season between summer and fall is looming in the coming weeks, it is becoming clear that the end of the refill season is approaching a peak of 3.5 Bcf, which is a comfortable amount of gas storage, even for an exceptionally long winter.
Gas futures continue to rise as summer heat eases
The lack of a bearish reaction to weather changes and an all-time high in gas production in recent weeks also make it clear that market bulls are not ready to throw in the towel just yet — even though the first half is likely to be warmer. From winter
Almost all temperatures in the U.S. southern, also known as the nation’s climate belt, are simply not bullish for gas futures, as most of the region records daily highs 15 degrees below average. . These include Houston and Dallas, Texas, mid 80’s, New Orleans, LA, mid 80’s, Little Rock, Arkansas, near 80 degrees, and just Jackson, Mississippi, in the upper 70’s.
These temperature types are more reminiscent of temperatures like early fall than late August conditions. Long-haul models suggest the summer 2022 heat peak is now in the rearview mirror.
Source: Gelber & Associates
The folly of tying US gas to European prices
The main reason behind the rise in gas prices this week is the belief that somehow Henry Hub gas futures should be forced to bounce back from European gas prices. , the benchmark for European gas prices, rose 485% year-on-year on Monday and traded at a 740% premium to Henry Hub.
The surge in European prices comes as Russia’s Gazprom (MCX:) intends to go to zero for three days at the end of the month for maintenance work on the Nord Stream 1 pipeline. There is speculation that the flow may not resume once maintenance work is complete as part of Russia’s retaliation against Western sanctions.
Currently, European natural gas storage inventories are at 2,973 Bcf, up 575 Bcf or 24% YoY, which is more than enough for this period of their gas storage refill season. While there are legitimate concerns about winter storage, the Russo-Ukrainian war should continue into the winter months and push up European gas prices.
Somehow, in a twisted way, hedge funds want speculators to believe that US natural gas prices should also rise in line with European prices. That premise doesn’t make sense at all given that the United States has limited liquefied natural gas (LNG) export capacity – namely 3 billion cubic feet. The US doesn’t have the capacity to ship LNG shipments beyond its current capacity, so overseas gas prices shouldn’t affect Henry Hub Gas.
On the front lines, US utilities are likely to add 58 Bcf in the week ended August 19 versus injecting 18 Bcf the previous week, according to the consensus of gas market analysts tracked by Investing.com.
The US Energy Information Administration will release its weekly storage report at 10:30 ET (14:30 GMT).
US gas storage
Source: Gelber & Associates
Will the Henry Hub retest $10?
There is no doubt that US gas futures are overvalued at current price levels. This will be a factor for the greater US as there are myriad products associated with the cost of natural gas. While dry gas production is approaching 97 Bcf/day during pipeline maintenance, it is still around 4 Bcf/day, which is not fast but is being considered.
Until cold weather sets in in the United States and gas supplies hit 3.5 trillion cubic feet (tcf), buyers will likely remain in control. However, once all of these bearish catalytic forces are combined, a major downside correction is likely later this year that will see the price fall well below $6.
“Gas bulls are still pointing to a storage deficit of around 300 bcf versus the five-year average as reason to push prices lower and the overall momentum in gas bulls continues despite any bearish drivers in the market. This suggests that buyers may be making even more efforts to reclaim the $10 area.”
Gas futures technical charts are showing a sustained break above the $10 high, a first for gas futures since 2008, which would add confirmation of a bullish extension.
Sunil Kumar Dixit, Chief Technical Strategist, SKCharting.com said:
“Short-term direction is driven by $9.06 support and $9.45 resistance.
“The daily chart shows that Natural Gas has completed the formation of a potentially bullish ‘cup with handle’ pattern that is targeting a major rally on the longer time horizon.”
But if momentum reverses, $8.007 is a level to watch. “A break below $8.007 will invalidate the bullish pattern,” said Dixit.
There are now indications that dry gas levels could come under pressure north of 99 Bcf earlier than market expectations. It will be interesting to see if the gas bulls also ignore this data.
Disclaimer: Barani Krishnan uses a variety of ideas outside of his own to diversify his analysis of each market. For the sake of neutrality, he sometimes presents conflicting views and market variables. He has no positions in the commodities and securities he writes about.