May natural gas futures recorded their second consecutive “quiet” session on Tuesday, but one broker noted that increased volatility is likely ahead once the liquefied natural gas (LNG) supply, demand and price dynamics play out as early as this summer. Front-month natural gas closed 3.7 cents higher Tuesday at $3.776.
After Monday’s two-tenths-of-a-cent gain, market observers might have thought they were watching a carbon copy of the action on Tuesday. While the day’s 15.4-cent trading range between $3.634 and $3.788 was slightly larger than Monday’s 10.1-cent range, most traders were still unimpressed.
“There is not a whole lot going on in natural gas futures currently,” said a Washington, DC-based broker. “It seems crude keeps swinging back and forth, but natural gas isn’t doing much during the day. It appears we are holding in this area and are stuck in a zone.” After plummeting $3.97 on Monday, May crude bounced back a bit Tuesday by gaining $1.49 to close at $49.90/bbl.
Despite weak fundamentals and economics, the broker said the downside is certainly limited. “We continue to absorb all of this bearish news on a daily basis, but we haven’t broken significantly lower here. Our thought is we are currently basing, whether it is at $3.550 or $3.450,” he said. “Last week’s rally flamed out pretty quickly on the storage injection number, but this market has been beaten down for so long, I don’t know how much room lower there actually is. We don’t see anything in the realm of likelihood that gets us below $3, but we could be weak and wander around in the mid-$3 price level. We could stay sub-$4 for a while, especially if summer forecasts don’t look too hot. We will have to wait for those forecasts to come out.”
Looking a little further out, the broker said LNG movement this summer could provide for a bumpy ride for prices.
“There is a lot of debate over the impact of LNG,” he said. “Right now, Russia natural gas is priced way over the current U.S. market because they tie to crude oil prices that are lagged six to nine months. Europeans can decline up to 15% of the volumes that they have contracted for under the terms of their contract, so a lot of the Europeans are not willing to buy gas based on $95 or $120 oil. To make up the difference, they look to buy spot LNG because it is much cheaper. That is soaking up some of the LNG that might be in danger of coming to our shores. You have to remember, the United States is to gas storage what Saudi Arabia is to crude oil. Now that we have started to globalize the world’s LNG trade, when people don’t want the gas elsewhere, it will come to the United States for storage. It is already happening.”
A recent Morgan Stanley report showed that some Asian utilities, due to lower demand and lower comparative coal prices, are starting to divert contracted LNG volumes back into spot markets at prices around the $4.500/MMBtu area when they had bought them at $6.500/MMBtu.
“Basically, these utilities are willing to take the $2 loss because they don’t want to pay to have the ship sail around forever,” the broker said. “Eventually, if someone buys it at $4.500, then they might store it on the Gulf Coast. Because we have the storage, we’re going to catch cargoes when prices are low and there is nobody to buy them. On the other side, we will lose supply out of our storage bank to other countries when prices are moving higher. Contrary to the normal thought process, being the natural gas storage capital is going to increase our volatility, not decrease it. Right now the world is sucking up LNG because they don’t like the Russian price, but as we move forward and Russian prices come down, there will likely be more stray LNG. This is already happening, but the effect will likely be complete sometime this summer.”
Winter just doesn’t seem to want to go away. WSI Corp. in its six- to 10-day forecast shows below-normal to much-below-normal temperatures for most of the country with the exception of South Texas and the Pacific Northwest. Anomalies as cold as 15 degrees below normal are anticipated over the northern and central Plains, it said. WSI offers a caveat in that “temperatures may trend even colder over most of the country than currently forecast.”
Some analysts see current natural gas futures as lacking the oomph to move in either direction. “Natural gas started the week in a range-bound mode, with no significant catalysts for a price move in either direction, following last Thursday’s bearish inventory report and the associated price fall,” a group of analysts said in a Barclays Capital research note.
©Copyright 2009Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |