Why there is such a run on the market when the injection today was slightly above analysts’ expectations? In the same fashion as the last few months, the injections have been in line but are severely behind compared to the previous year, and all the while, we see further Liquefied Natural Gas (LNG) demand.
Natural Gas has continued its rally leading up to the settlement of the June 2022 future. As market analysts have predicted, the potential for double-digit natural gas is getting stronger and stronger as we head into the summer air conditioning (AC) cooling season.
The storage report announced at 10:30 AM each Thursday showed an 80 BCF injection, which was slightly above analysts’ expectations of 76 BCF (billion cubic feet); while 80 is in-line, it is still lagging on the year-over-year and five-year average. Currently, working gas in storage is at 1,812 BCF, 17.6% below the year-over year comparison, and 15.3% below the five-year average. In addition, the output from gas basins, specifically Marcellus, is lower than last year, and we are now in AC demand season.
Over the last two weeks, when hydro is typically ripping, we have seen reports of dreadfully low hydro output. Combing the significant increase year-over-year in LNG demand with the low storage numbers was enough during April and early May to run the market. Now analysts are expecting a severe strain coming from AC demand this summer.
The recent heat waves showed potential rolling blackouts in the upper mid-west occurring this summer cooling season. Due to the lower-than-average hydro output, there will be increased strain on the gas-fired generation units across the continental US.
Currently, the June 2022 future is trading at $9.23, and we do not see a future contract below $9 until February of 2023. Bullish volatility is expected to continue through the summer months as upcoming heat waves are expected to be a catalyst for the march northward to continue.