NatGas futures (symbol: NG) have successfully worked off the over bought condition resulting from its Feb13 run-up to the $6.493/MMBtu level. While the industry has responded mightily to the US natural gas storage injection challenge, inventories at the start of this winter will be below the 5 year historical average. With that said, the gains in distributed shale production are expected to dampen the industry’s price response to these lower storage inventories at the onset of winter. Conversely, expect higher than normal price volatility in late winter in the event inventories are drawn to critical levels.
In our post dated 27May14, which can be found here … http://murphycofutures.com/us-natural-gas-storage-fill-challenge-on/, we stated “The challenge currently facing the US Natural Gas industry … inject into storage 2,800 Bcf prior to the start of the 2014-15 winter.” That translates to a straight-line fill rate of 93.3 Bcf per week (30 weeks in the 01Apr-01Nov period). Since the first week of Apr14, injections have averaged 87 Bcf per week. Our best estimate suggests US natural gas inventory in storage at the 01Nov14 date will be near the 3,450 Bcf level, substantially below the 3,800 comfort level.
The following Working Gas in Underground Storage chart, released 25Sep14, is provided courtesy of the US EIA.
The pullback from the $6.493/MMBtu level continues to reflect lower volumes, moderating volatility and retreating stochastics. Stochastics are now prviding a buy signal. Support lies at the $3.95 and 3.12 levels. Lots of resistance between $6.50 and 8.21 range. The potential exists for yet another pullback to test the $3.95 level, or lower. Late winter should bring a test, and possibly breach, of the Feb14 $6.493/MMBtu high.
Murphy & Co’s Natural Gas model is currently short. To learn more about Murphy & Co’s position models, visit http://murphycofutures.com/position-models/.