Nat Gas Report: 3/16/25 - Pre Summer outlook
(scroll chart for info/data/charts. Info located between 2.200-5.500, 2019-2025. Sorry for the extra work!)
The weekend calls paid off. I closed my 4.50 calls Monday AM, when the price failed to break the 4120 level. When the price popped, I entered a set of 4.50 puts which I closed this morning when the price approached the 4000 level. April has immediate support at the 4000 psychological level followed by the 3955 low of last week, an area tested twice before rallying. So, 4000 is supporting the price structure. This morning as the price struggled at the 4170 level, I entered my short, knowing that support sits at 4000. Once the price bounced around the 4030 level I again enter at block of four calls at 4.50, but on the May contract. The April contract is too dangerous to hold longer than a day due to the Greeks of the option, and the uncertainty of Trump. So, I now have a true strangle with a block of calls at 4500 and a half block of puts at 3300, on the May contract. I am thinking that I may close my puts if the price breaks below the psychological support of 4000/3950 on the April, and there is velocity to the down side. I am expecting that May should make it back to the resistance level 4320-4350 and back up to the 4500-4550 level.
Tomorrow Trump and Putin and speaking and there should be some news about the proposed peace plan. My belief is that Putin is going to stall for more time, but the big test is if Trump will make good on his threats of banking sanctions! That is one of the reasons I am taking the hedge with the strangle. Strangles are great for high volatility. But, again, we will see the price react probably before the news hits! So big spike up rumors of no peace deal, big move down more rumors of peace.
I do believe that we will see price move back to the higher resistance levels in May, due to production not keeping up with demand. There is not much wiggle room in the availability of supply, due to the low number of rigs pulled out of the field last year, and the low number in the field this year (check 3/13 post for info on rig counts).
Supply/Demand
Even with weak demand, storage remains tight compared to historical averages. The latest EIA report showed a larger-than-expected withdrawal of 62 Bcf for the week ending March 7, pushing inventories 11.9% below the five-year average. While this helped stabilize prices briefly, it has not been enough to drive a lasting uptrend.
On the supply side, Wood Mackenzie estimated Lower 48 production at 104.9 Bcf/d Monday, versus a weekend average of about 105.5 Bcf/d. The about 600 MMcf/d drop was attributed mainly to Pennsylvania amid maintenance on Empire Pipeline Inc. Lower-48 dry gas production remains steady, averaging 107.1 Bcf/day, a 4.6% year-over-year increase. Total demand reached 77.0 Bcf/day, up 5.7% from last year. According to Wood Mackenzie data, LNG demand continued to hover around 16.0 Bcf/d on Monday.
Additionally, after an uneventful 2024, LNG export demand has surged to new record highs as the new Plaquemines facility has rapidly ramped up volumes. Feed gas demand has repeatedly topped 16 BCF/day for five days in a row, including yesterday when flows were right at a new record high of 16.53 BCF/day, up +3 BCF/day year-over-year. Today’s feed gas demand was in at 16.38 BCF/d. Importantly, exports will continue to rise this Summer and Fall, potentially reaching 17-18 BCF/day, up to 5 BCF/day higher year-over-year, essentially countering the gain in supply. Along the same lines, while gains in natural gas production are fueling the large gain in year-over-year supply as discussed above, investors speculate that continued diminished drilling activity and less productive wells will ultimately lead to little production growth the rest of the year. As a result, the year-over-year gain in exports could rise while supply gains are narrowing, leading to a quickly tightening imbalance heading into the next withdrawal season. HH Spot was up another 22.5 cents today, signaling the demand for LNG feedgas. Which is helping to keep pressure on HH future contract. Cheniere Energy Inc. said Monday that the first train at its CCL expansion has been completed. It is the first of seven mid-scale liquefaction trains the company is adding at the facility.
Mexico demand has also been solid. Mexico imported 6.679 Bcf/d of natural gas via pipeline from the United States on Thursday. South Texas flows accounted for 4.408 Bcf/d, according to NGI calculations. West Texas flows across the border into Mexico were 1.549 Bcf/d. Wood Mackenzie’s 30-day range for cross-border flows was 6.2 Bcf/d as of Wednesday. Average U.S. pipeline exports to Mexico this month are 6.59 Bcf/d, according to NGI calculations, on track for a record month.
The weather wild card
The models are now seeing the reaction to the atmospheric influence of the SSW event. The AO and the NAO are now predicted to go negative after this coming work week. This is being telegraphed in the models printing colder and adding more HDDs. It is my belief that we will continue to draw from storage up until the second week of April. This is the time of year where storage begins it injection cycle. This week is the official end to the withdrawal season, and when calculations are begun for the upcoming injection season before next winters withdrawal season. We are currently at 1.7 TCF in storage, second only to 2022. The current industry projections currently put us 200 BCF below 2022’s injection season. This is being influenced by the greater overall demand in LNG exports, exports to Mexico, and general power demand. And the lack of new production due to lack of drilling activity the past 12 months and the lack of pipeline infrastructure due to regulatory issues left over from the Biden Administration. The upcoming summer forecasts are predicting a hot summer in the south-central US, where NG storage is at 16.8% the 5-year average and the lowest in the 5-year period! This has a big impact on LNG production, Mexican exports, and most of all the main contributor to the HH spot price! The summer forward price strip reflects this with an average price of 4454. The most recent EIA STEO forecast predicts Henry Hub price will average around $4.20 per million British thermal units (MMBtu) in 2025, 11% more than last month’s forecast. This is price is not reflected by last week’s price spike to 4950, and the expectation is the next report will revise prices even higher!
The current SSW event is happening during a period of the year where the days are longer and warmer. So, there is no expectation of any drastic events that should spike the price, like a Trump press conference on Tariffs! But the expectation is steady pressure on the storage numbers through the shoulder season, and the dry hot weather that is associated with the months that follow such an atmospheric event. From past years, we know that the month of May following SSW events, are very warm in the central part of the US. A very good indicator for increased demand. As such the south-central US is currently under going a serious drought, which should aid in the increase demand for cooling. As the lack of moisture in the ground will aid in daily night time temperatures exceeding historical normal.
Demand on top of demand on top of stagnant production is a good sign for a similar set up to 2022. I am not predicting 2022 types of pricing, just a steady increase of pricing going into the US summer season. 2022 pricing spiked up to 64% of the yearly opening price. 2025 is currently up 29% for the year. 2022’s price highs were during the months of June and late August. I do see such a situation forming now, like 2022. But, again, Trump can Trump the Trump! So, this analysis is based only on my fundamental outlook for the next eight weeks, or two contract cycles. Since I am currently trading the April contract, I am only beginning to develop a strategy for the shoulder season and will trade accordingly, based upon the market fundamentals and the market pricing dynamics.
Key levels I will be watch include support beginning at 3950-4000, 3875, and 3685-3730. My belief is that if the price breaks the 3875 level, it could get very ugly, very fast with all the longs piled into the market. There are many, many long positions that entered the market after the 4000 price was broken and I could foresee numerous margin calls and possibly mass liquidations. But to the upside I am looking at resistance beginning at the 4170-4200 level. From there 4290-4320 and 4430-4460. If there is velocity up to the prior gap, I can see trying to reach the very important level of 4750. Which by the way has a great deal of importance from the double peak form the previous highs of the last great swing. So, good fortunes and happy trading.
Keep it Burning!
