Key Drivers
- Natural gas storage is 529 bcf or 29.3% higher than at the same point last year
- The South and Southwest remain cooler than normal through at least mid-June
- LNG natural gas exports are strong, but pending maintenance could lower volumes exported
- Quickly falling natural gas drilling rig count will likely cause lower production later in 2023
Commentary
As we enter June both the fundamental and technical outlook for natural gas and electric in the very short-term is bearish. The South and Southwest are expected to remain cooler than normal for the next two weeks and likely into mid-June. Coupled with above average natural gas storage injection numbers along with some upcoming LNG terminal maintenance, it’s not surprising to see very attractive short-term natural gas and electric prices. When the cooling demand does finally arrive in the south and southwest the fundamental weather driven demand will likely put more upward pressure on prices. The hottest months of the year lay ahead. Due to low natural gas prices in the U.S., producers have lowered the number of active drilling rig counts to near 2016 levels. This is why the U.S. EIA is forecasting that natural gas, and therefore, electric prices will start climbing the last half of 2023 as weather driven demand picks up, daily natural gas production numbers drop and the storage injections substantially drops. The EIA further projects that natural gas and electric prices will climb modestly throughout most of 2024.
Exactly one year ago natural gas storage was sitting at 3359 bcf versus today at 3747 bcf. Natural gas prices were siting at $8.895/MMBTU versus today at $2.327/MMBTU. June storage injections are forecast to see the second highest volumes since 2014. Still the final end of storage injection season numbers are currently forecast to be approximately 3747 bcf or about 250 bcf short of maximum capacity. Late season storage injections are expected to drop sharply once weather driven cooling demand arrives and production levels drop. Again, while we could still see some lower natural gas and electric prices in the next couple of weeks, price volatility and price jumps will likely occur as the fundamental conditions change. Starting the injection season with such large injection numbers and ending the season below maximum capacity demonstrates the drop that forecasters expect to see as the result of reduced natural gas production.
The technical short-sellers are looking to push prices down and take advantage of the weak fundamental conditions in the very near-term. However, bullish traders are looking to take advantage and push prices back up given the opportunity as stronger fundamental conditions arrive. This technical trader situation might provide a very brief short-lived “buy” opportunity that could quickly disappear as prices get pushed back up by the bullish traders. This is a great example of how price volatility happens.
We at RD Energy use this newsletter as one way to keep our clients informed on current natural gas and electric conditions and key drivers that are effecting prices. Of course, conditions can change weekly or even daily. One of our fundamental principles is that our clients need informed so they can buy more timely rather than just right before their current contracts are about to expire. We track energy wholesale conditions daily so we can reach our to clients especially those with contracts set to expire in the coming 12 months so they can better decide on price targets and what works best for their budget. When price volatility is so high it’s not just about hitting the market bottom, but also about upward price protection to help keep costs in check and energy budgets stable. Always feel free to contact us if you have questions about your contract end dates or want to strategize more about your natural gas and electric purchases. We are always happy to hear from you and are ready to review your options as well as provide advice and recommendations.