US Nat Gas Rebounds On "Worrisome Inventory Forecasts" That Show Tight Summer

Tyler Durden's Photo
by Tyler Durden
Tuesday, Apr 26, 2022 - 03:17 PM

Fears of tightening supplies are bidding up natural gas prices on Tuesday morning. This comes after prices tumbled into a bear market last week after tagging 13-year highs. 

Last Monday, natgas futures hit $8/mmBtu for the first time since 2008 on a confluence of factors, including shrinking inventory levels, strong export demand to Europe, and colder temperatures. Then Samantha Dart, head of natural gas research at Goldman Sachs, told clients that prices "likely overshot," which sent prices spiraling into a bear market, bottoming out around $6.36, and have since rebounded. This morning, prices are up 3.5%, trading around $6.85 on renewed supply fears. 

Supply fears emerge as the US boosts exports to Europe to mitigate a natgas crisis and reduce the continent's reliance on Russian energy. However, this has been problematic for US domestic supplies as weekly storage refills are below a five-year average. 

"More worrisome is inventory forecasts that remain tight for this summer and winter," BloombergNEF cautioned. 

BloombergNEF analyst Enrique Gonzalez expects natgas supply to tighten through summer into winter. Gonzalez recently penned a note explaining some of the drivers of the shortage, including slow-to-respond production, strong LNG export growth, the potential for a warmer-than-normal summer, and increasing industrial demand. 

Despite soaring prices, the highest in over a decade, US gas production remains below the highest level in December. As Gonzalez said, new production has been slow to come online. 

In terms of exports, the US shipped out a record 7.685 million metric tons of LNG in March. Exports will continue to increase as long as Europe seeks alternatives to Russian energy. This will reduce supplies in the US and continue to place a bid under prices. 

Then there's a weather component to why prices are elevated, and this is just short-term. The chart shows the latest European Centre for Medium-Range Weather Forecasts (ECMWF) for the US, diving below a 30-year trend line into late April and staying well below the level through mid-May, which would spur demand for electricity to drive heading, leaving less storage. 

Tightness in the market will keep prices elevated this year.