Key Drivers

1. U.S. Natural gas storage levels week ending 2/21/2020 reflects levels 41% above one year ago levels
2. It looks like the 2019/2020 season will end as the warmest winter ever recorded worldwide
3. The first 3 weeks of March are forecasted to be well above normal temperatures
4. When will U.S. production drop due to reduced drilling and shut-in wells?
5. How will the coronavirus affect LNG exports to Asia – United States’ largest LNG market?
6. Will electric and natural gas demand jump with a hot summer?

Commentary

This winter in the U.S wasn’t supposed to be like this.  Forecasters believed this winter would be colder than last winter.  The general thinking was that the Artic would release it’s “normally” cold temperatures into the Eastern U.S..  A series of high pressure ridges were expected to form over Alaska and Greenland throughout the winter pushing prolonged and short shots of extremely cold temperatures into the eastern U.S..  Normally with the beginning of the winter months the Artic builds a deep reservoir of extremely cold air held in place by the Polar Vortex.  As winter progresses the pressure system known as the “Artic Oscillation” normally swings back and forth as high pressure systems and low pressure systems strengthen and weaken the polar winds circling the Artic.  Sometimes when very strong high pressure systems crashes into the Polar Vortex somewhat like a wave lands on a beach, it often weakens and displaces portions of Polar Vortex and sends extremely cold temperatures south for extended periods of time until the Polar Vortex settles back into place.  Some believe unusual activity in the Pacific ocean near India played a big role while others believe the Australian fires were a factor.  It’s definitely a mystery that will be researched.  This weather phenomenon  is making the groundhog forecasts of an early spring look very accurate.

As many of the Key Drivers point out, high natural gas production in the U.S along with much lower winter demand has resulted with above normal storage levels.  This means we expect to see abnormally low natural gas and electric prices for at least the next few months.  Natural gas prices are already at levels causing drilling reduction.  However, many of the producers are cash poor, which means they may sale their natural gas at about any level, at least for a while, desperate to raise cash to cover financing costs from previous drilling projects.  We’re sure producers are hoping for a very hot summer to gobble up the natural gas surplus since natural gas is now the number one fuel source for electric generation.  Although the next few months well-head prices are hitting near record low levels, longer term prices, while attractive, are much more normal due to A. optimism amongst energy traders that more bullish factors will eventually exist and B. the volume of trading in the front three months is always the highest meaning they have the most volatility.