Several months ago, as John Arnold was terminally unwinding long gas positions into an illiquid market, sending natgas as low as $1.80, various pundits called for a bidless market in natgas. Today they are silent, because 3 months later, nat gas is 60% higher, and is on the verge of crossing the $3.00 psychological barrier, and going unchanged on the year, in the process pushing Chesapeake energy above $20 for the first time since the vendetta-like Reuters battery of negative articles allowed such activists as Carl Icahn and Dan Loeb, not to mention Zero Hedge readers, [9]to accumulate a position in the name in the mid-teens.
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The main reason for this relentless push higher is what is shaping up to be another record hot summer, leading to a surge in A/C use and putting many marginal natgas power plants in play. From Reuters [11]:
U.S. natural gas futures edged higher in early post-holiday trading on Thursday, boosted to their highest level in six months as more hot weather on tap for much of the nation lifts air conditioning demand.
But traders expect little more upside, with prices hovering above the 200-day moving average near $2.82 per million British thermal units and most noting the market will have a hard time breaking the $3 level, where gas loses its appeal over coal for power generation.
As of 9:00 a.m. EDT (1300 GMT), front-month August natural gas futures on the New York Mercantile Exchange were at $2.916 per mmBtu, up 1.7 cents, after trading as high as $2.957, the highest mark for a front month since early January, according to Reuters data.
NYMEX was closed Wednesday for the U.S. Independence Day holiday.
Since posting a 10-year low of $1.902 twice in late April, nearby futures are up about 53 percent on signs that record production was finally slowing and demand picking up as more electric utilities switched from coal to gas.
Furthermore, all those rumors about the demise of nat gas demand appear to have been greatly exagerated:
Gas demand picked up sharply this year as spring prices hit 10-year lows and prompted many utilities to use more gas-fired generation to produce power. But gas production is still flowing at near-record-high levels despite relatively low prices that have made many dry gas wells uneconomical.
EIA's gross gas production report on Friday showed that April output rose 0.8 percent from March to 72.48 bcf per day, just shy of January's record of 72.74 bcf daily.
But data from Baker Hughes last week showed the gas-directed rig count fell to 534, its ninth drop in 10 weeks and its lowest level since August 1999.
It appears that with no easing in sight (pun intended) to scorching weather, nat gas has only one way to go. Up.
The National Weather Service's 6- to 10-day outlook issued on Wednesday called for above-normal readings for much of the western half of the nation and along the Gulf Coast of Texas, with normal readings in the Mid-Continent and below-normal readings in the Northeast and Southeast.
Nuclear power plant outages were running at about 8,800 megawatts, or 9 percent, on Thursday, up from 4,700 MW out a year ago and a five-year outage rate of just 4,100 MW.
There is good news: as the following weather forecast shows, things could always be worse.