- The market expected a ten bcf injection
- The withdrawal season has arrived and should show up in next week’s data
- Watch the weather for clues about price directions over the coming weeks
The middle of November is the time of the year when Thanksgiving and the holiday season is right around the corner. In the natural gas market, the start of the cold weather season means that demand for the energy commodity rises and peaks during the winter months. Each year, uncertainty over the average temperatures from December through March across the US peaks in mid-November. Only Mother Nature knows what she has in store when it comes to a colder, warmer, or average winter season.
On Thursday, November 14, the Energy Information Administration released its weekly data on the amount of natural gas in storage around the United States for the week ending on November 8. The United States Natural Gas Fund (UNG) moves higher and lower with the price of the energy commodity.
The market expected a ten bcf injection
The injection season in the natural gas market has been winding down over the recent weeks. For the week ending on October 25, 89 billion cubic feet flowed into storage. The following week stockpiles rose by 34 bcf as of November 1. Before the EIA data on Thursday, the market’s consensus was that inventories would rise by around ten bcf.
(Source: CQG)
As the chart highlights, the EIA reported a smaller than expected injection of only three bcf for the week ending on November 8. Stockpiles stood at 3.732 bcf, which was 15.1% above last year’s level, and only 0.1% above the five-year average for this time of the year.
The withdrawal season has arrived and should show up in next week’s data
Next week, the EIA will likely tell the natural gas market that the injection season ended. The data is likely to show that stockpiles of the energy commodity dropped for the first time since last March during the week ending on November 15.
The cold temperatures across a broad area of the US caused a significant increase in demand for heating. The three bcf increase reported on November 14 was the last of this year, stocks will have peaked at 3.732 trillion cubic feet, 485 bcf above last year’s level at the end of the injection season.
Meanwhile, the price of natural gas was trading in the middle of its recent trading range after the release of the latest EIA data.
(Source: CQG)
The daily chart of active month December NYMEX natural gas futures contract illustrates that the price rose from its most recent low at $2.388 on October 11 to a high at $2.905 on November 5. The midpoint of the trading range is $2.6465 per MMBtu. The price was trading at $2.67 per MMBtu, just above the midpoint after the latest data release.
Watch the weather for clues about price directions over the coming weeks
The weather and temperatures in the US will be the most significant factor when it comes to the path of least resistance for natural gas futures over the coming weeks. The price action in the volatile energy commodity is likely to be as fickle as the weather.
I continue to believe that the odds favor a rally in the nearby future contract to the $3 per MMBtu level over the coming weeks. The price is not likely to move anywhere near the high from November 2018 when it traded to $4.929 per MMBtu. Inventories are significantly higher this year compared to at this time last year. However, at the $2.67 level, a move to $3 would translate to a 12.4% increase in the price. A prolonged period of cold weather conditions that drawdown stockpiles rapidly always has the potential to drive the price even higher than my $3 target.
The United States Natural Gas Fund L.P. (UNG) was trading at $20.83 per share on Thursday afternoon, down $0.23 (-1.09%). Year-to-date, UNG has declined -10.68%, versus a 16.46% rise in the benchmark S&P 500 index during the same period.
UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #51 of 109 ETFs in the Commodity ETFs category.
About the Author: Andrew Hecht
Andrew Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories. Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup. Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.