U.S. Natural Gas Market: I Have Reduced Short Exposure

U.S. Natural Gas Market: I Have Reduced Short Exposure

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The Weather

Last week

Last week (ending Feb. 18), the number of heating degree days (HDDs) increased by 2% w-o-w (from 176 to 179). However, the total “energy demand” (as measured in total degree days or TDDs) was 32% below last year’s level and just 2% above the 30-year average.

This week

This week (ending Feb. 25), the weather conditions in the contiguous United States have been warming up but only slightly. I estimate that the number of nationwide HDDs will edge down by 1.9% w-o-w (from 179 to 176). The average daily consumption of natural gas (in the contiguous United States) should be somewhere between 98 bcf/d and 101 bcf/d. The total “energy demand” (measured in TDDs) should rise by as much as 14% y-o-y, while the deviation from the norm will remain positive (+7.8%).

Next week

Next week (ending Mar. 4), the weather conditions are currently expected to warm up more substantially. The number of nationwide heating degree days (HDDs) is currently projected to plunge by 12% w-o-w (from 176 to 155). However, the total “energy demand” (measured in TDDs) should rise by 7% y-o-y. The deviation from the norm will be neutral (+0.2%).

U.S. Energy Demand

U.S. Energy Demand (TDDs) (NOAA, ECMWF, Bluegold Trader)

Market Variables

The latest numerical weather prediction models (Wednesday’s short-range 00z runs) agree that over the next 15 days, TDDs will be trending lower but will remain mostly above the norm. However, there is a minor disagreement between the models in terms of scale. The latest GFS model (00z run) is projecting 88.0 bcf/d of potential natural gas consumption (on average, over the next 15 days) while the ECMWF model (00z run) is projecting 87.8 bcf/d over the same period.

In relative terms, the latest short-range weather models were bearish (vs. the previous update). Specifically, ECMWF 00z Ensemble has “removed” some 18 bcf of potential natural gas consumption compared to yesterday’s 12z results. In absolute terms, projected short-range TDDs are 11.8% above last year’s level and 3.3% above the norm.

U.S. Short-Range Weather Forecast

U.S. Short-Range Weather Forecast (NOAA, ECMWF, Bluegold Trader)

Over the next 30-day period, total natural gas demand (consumption + exports) is expected to average 112 bcf/d (adjusted for probability), 7.6 bcf/d more than a year ago. A seasonal high in daily consumption was reached on January 21 (136.3 bcf/d). Consumption is currently projected to trend lower and should hit a major near-term low on Mar. 5 – 81.4 bcf/d. Please remember that domestic consumption is an extremely volatile market variable because it is primarily driven by the weather forecast, which is highly unpredictable.

U.S. Natural Gas Consumption

U.S. Natural Gas Consumption (Bluegold Trader)

U.S. Natural Gas Demand

U.S. Natural Gas Demand (Bluegold Trader)

I estimate that dry gas production currently stands at 93.9 bcf/d. Net exports (calculated as “exports minus imports”) are estimated at 8.9 bcf/d (+0.7 bcf/d y-o-y).

U.S. Dry Gas Production

U.S. Dry Gas Production (Bluegold Trader)

U.S. Net Natural Gas Exports

U.S. Net Natural Gas Exports (Bluegold Trader)

Storage Report

This week, the U.S. Energy Information Administration should report a smaller change in natural gas storage compared to the previous week. I anticipate seeing a draw of 120 bcf (204 bcf smaller than a year ago and 46 bcf smaller vs. the five-year average for this time of the year). The annual storage deficit is currently projected to expand by 104 bcf by Mar. 18. The storage deficit relative to the five-year average is projected to expand by just 26 bcf over the same period.

U.S. Natural Gas Storage Forecast

U.S. Natural Gas Storage Forecast (Bluegold Trader)

Executed Trades

I have closed a total of 14 trades over the past week. I still hold a relatively large short position in NYMEX natural gas (Apr. contract) but my take-profit targets are relatively modest. See the list of executed trades below.

Trading Results

Trading Results (Bleugold Trader)

Originally Posted on: https://seekingalpha.com/article/4489404-us-natural-gas-market-reduced-my-short-exposure-but-maintain-bearish-bias?source=feed_tag_commodities
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