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Natural Gas: A Tale of 2 Tenors

June 25, 2020

Natural Gas is facing potential storage congestion at the end of injection season. A report from the EIA this morning did nothing to help alleviate those concerns, as storage built +120 BCF, 11 BCF more than analyst consensus expectations. Increasingly the summer portion of the 2020 strip (through October) is weakening while the Winter strip and Cal 2021 hold better values. Reuters sees 40-45 cargoes cancelling for August, which would add another 5-6 BCF/d of supply during that period. That is ~1.5-2.0 BCF/d greater than what the market was expecting, adding pressure to nearby pricing until better arb pricing in the fall can ease the cancellations. 

 

The market is interpreting the record low rig count to mean that decline rates will support much better pricing through lower production in 2021.

 

Spot $1.50 -0.10

Bal 2020 $1.87 -0.08

Cal 2021 $2.56 -0.02

 

Since Mid April, R^2 has a Market Driven recommendation for scaling into producer hedging in Cal 2021 from $2.65 up to $2.85/MMBtu.   



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