Sell the Rally Mode Is Now in Full Effect
The speed at which natural gas flipped from bullish to bearish only highlights the fact that we are now in a “sell the rally” market. In my opinion, other than the huge price spike in late January, sellers have been in control since December. However, they paid a heavy price during Winter Storm Fern before regrouping. Fear of reduced heating demand and higher production could weigh on the market for more than a week.
Production Surge and Storage Deficit Set Up a Critical Spring Season
Monday’s data showed dry gas production at 113.7 Bcf/day, according to BNEF, putting it up about 9.0% for the year. Long-term production estimates from the Energy Information Administration (EIA) are also bearish, calling for 109.97 Bcf/day, up from 108.82 Bcf/day.
Traders are watching production closely because there is a storage deficit. In last week’s EIA storage report, the government reported that natural gas inventories were 5.6% below their five-year seasonal average. Traders are hoping that production is sufficient during the upcoming spring shoulder season to shore up the tight supply situation before the summer cooling season. With drilling rigs at a 2.5-year high of 133 rigs, according to Baker Hughes, expectations are high for ample supply.
LNG Demand Is the Wildcard That Could Change Everything
In my opinion, the wildcard this year is going to be LNG production. The demand for the product is high, pushing estimated LNG net flows to U.S. LNG export terminals on Monday to 19.9 Bcf/day, up 1.61% week-over-week, according to BNEF.
