We watch CNBC everyday looking for updates (actually good news) on the price of oil and nat gas. It was a real surprise that nat gas jumped to 2.43 at one point on Tuesday. But there was no news on what caused the upward movement but we’ll take it any way we can get it.
After some research here’s what we found:
- July contracts are higher due to expectation of higher than average temps. See below
- The first two weeks of June will start off bearish.
- Investors are doing some short covering is likely (most likely) the cause of this rally.
- July natural gas contracts are higher today, due partly to expectations of a warm summer and short covering.
There is also speculation that the estimated amount of nat gas stored may not have been correctly calculated, it could be less. As part of that let’s not forget there is little nat gas being added to storage due to lack of rigs in production and pipelines not all online.
Many of the traders tend to think this uptick is purely short-covering. They believe current storage levels are still bearish, but the surplus is expected to decrease over the summer. There are a few important weeks coming up, as lower-than-average injection numbers are needed in order for storage levels to remain below capacity at the end of the shoulder season.
U.S. gas production has been in a decline, and nearly 1 bcf/d of gas production in Canada are shut in due to the Fort McMurray fire. The investors are currently anticipating U.S. dry gas production to fall to 68 bcf/d by the end of the year, and we don’t expect any material growth in 2017. Rig counts will need to rise materially for production to grow as high shale declines eat into production.
Mexican exports should help alleviate some of the surplus storage over the summer, as exports are expected to increase but it can’t be too much or too soon.