Natural Gas: Storage Report Comes In As Expected, Futures Drop

The March futures are down 3.3 cents at $6.1160. with a $5.882 low and $6.400 high for the day.

There is a structural shortfall of natural gas potentially shaping up. At 1,600 Bcf of gas in storage as of Valentine's day and with another cold snap coming next week it is possible that we may end the heating season in the 800 Bcf range.

And here's the problem. A cold winter is often followed by a warm summer. Looking back to the 1930's some of the largest winter/summer temperature spreads ever recorded occurred in 1936 (also in '34 but I don't have the table):




Just shy of 170 degrees F in both North Dakota and Montana!

We have been so successful switching electrical generating plants from coal to natural gas, have built almost $100 Billion of chemical co. infrastructure to take advantage of natty and have had some (small as a percentage) uptake of natural gas powered transportation that we may have trouble building storage reserves for the 2014-2015 heating season.

Be careful what you wish for eh?

That is why you saw stuff llike this on Jan. 22:

Back on Jan. 9 we suggested buying Exploration & Production companies for the first time in years just because the certainty level seemed higher with the equities than the futures, not out of any deep insight (bold highlighting done today):
Natural Gas: Price Collapses on EIA Numbers, Market Yawns at Next Week's Projected 300 Bcf Withdrawal Report

After hitting $4.4300 on Tuesday (from $4.2560 Friday, memento mori) the front futures have fallen to $4.0300, down $0.1860 just today and barely above the day's low of $3.9990.

And I'm thinking it may be time to look for some gas producer stocks.

The estimated withdrawal to be reported Jan. 16 report is far and away a record at the same time volume in storage is 10% below the five-year average and Tuesday's STEO says marketed production grows at an average rate of 2.1% in 2014 and 1.3% in 2015.

Production growth is slowing at the same time we've convinced utilities to switch wholeheartedly from coal and the government does by administrative orders what it can't do by parliamentary means (see this week's New Source rules from the EPA in the Federal register).

So, it's either equities or longer-dated futures, we just passed a turning point kids.
Here are some instruments to give you ideas should you not have a four-star, weekend special, single-stock  guaranteed lock on the tip of your tongue.

AMEX NATURAL GAS INDEX (XNG) 791.11 Down 11.57 (1.43%)
First Trust ISE Revere Natural Gas (FCG), $18.94-0.32 (-1.66%) which is the basis for the triple-levered Direxion Daily Natural Gas Related Bull 3x ETF (GASL), $30.82-1.73 (-5.31%), which is not something to buy til death do you part but which should hold its own while the inverse GASX, $27.81 +1.36 (+5.14%) collapses giving you a pair trade.
Do note the leverage in the last two....

So there you go....

Be that as it may, we're doing the picking up pennies in front of a steamroller thing, recommending a short in the face of all this just because the ascent was losing momentum. And as noted in one of the Tesla posts:

We'll be back with more but right now the more interesting question is "What happens to natural gas if the NYMEX raises margin requirements?'

Here's the week's action via FinViz, there is a lot of nervous money on the long side of the boat:

 

Note the Feb. 17 gap between $5.20 and  ~$5.50. If the cold spell weren't coming that would be the natural target but with all the amateurs in the market keep your stops tight and your sphincters tighter.

Here's today's EIA report. More to come.