May natural gas is set to open 3 cents higher Tuesday morning at $4.73 as analysts raise their longer-term price forecasts amid historically low inventories and hefty demand. Overnight oil markets eased.
The folks at Wunderlich Securities in Houston are raising their 2014 natural gas price forecast to account for lean inventories in natural gas, but they also said, "The severe winter experienced in U.S. and Canada did a great job in wiping out inventories of all sorts: petroleum products, natural gas, propane, and even ethane...We believe that 2014 should be another strong year operationally and financially for the sector. As such. we are moving our price deck higher across the board to account for the lower supplies and ample demand."
Irene Haas of the firm's equities research department said, "We are raising our 2014 price outlook for WTI from $95.00/bbl to $100.00/bbl, [and] our projection for U.S. natural gas (Henry Hub) from $3.90/MMBtu to $4.36/MMBtu and...At the same time, we are keeping our 2015 U.S. natural gas price assumption at $4.50/MMBtu for now..."
She expects robust pricing this summer to encourage gas storage. "Natural gas withdrawals from storage have been extreme. We entered the April shoulder month with about 826 Bcf in storage versus the five-year average level of 1,814 Bcf for the same period. While there is plenty of dry gas from the Marcellus, the lack of southbound transportation limits the threat this trend might post to prices. We could see increased activity trends with direct connection to the Gulf Coast storage areas such as the Haynesville, the Fayetteville and the Barnett. We expect strong prices all summer as utilities and various end-users compete to replenish inventory."
In the short term, analysts see some potential weakness before prices resume their advance. "While [Monday's] lows could offer some brief support, we are leaving open the possibility of a further downdraft into the $4.60-4.70 zone, a price range that could possibly be maintained through this week's EIA [Energy Information Administration] report given the fact that we don't expect any bullish shockers out of this Thursday's EIA data," said Jim Ritterbusch of Ritterbusch and Associates.
Ritterbusch recommends pursuing the market strictly from the long side. "Following a pause in this year's bull move that could potentially extend into next week, we will look for a renewed up-phase into new high territory that could potentially carry toward the $5 region in referencing the June contract. Our model remains one in which expected production gains will be insufficient to offset improving demand going forward. Eventually, output will see some upside acceleration when downward trends in gas-directed rigs reverse to the upside and injections will accelerate through much of the summer period. Nonetheless, a plethora of risk will keep values skewed higher, including a potential hot summer, early start to the hurricane season, unplanned nuke downtime, etc."
In a morning report to clients, Addison Armstrong of Tradition Energy said he sees the market "balanc[ing] severely depleted storage levels and expectations of increased demand due to a heavier than normal nuclear power plant maintenance and refueling season against record production levels of gas. But lingering heating load and expectations for a third consecutive below-average storage injection should provide support for gas prices."
In overnight Globex trading June crude oil fell 89 cents to $102.76/bbl and June RBOB gasoline slid a half cent to $3.0390/gal.