Natural Gas: The Fear of Getting Caught Long

If I had told you in October that this was what New York City was going to look like the third weekend in February:

CBS via Daily Mail

Where would you have guessed natural gas prices would be?
$5.00? $8.00?

$2.91?

For months we've been going on about how an average temperature heating season would be overwhelmed by natural gas supply.
Despite the Cryo-apocalyptic pictures, the season-to-date national heating degree days are just 2% lower than 'normal' although 5% lower than last year's very cold numbers.

This is an average year across the natural gas market and folks are afraid to bid.

Here are the observed season-to-date HDD's and the forecast for next week, from NOAA.

And from ValueWalk:

US Natural Gas Market To Remain Under Pressure Into 2016

Things are already ugly in U.S. natural gas markets, and its only going to get worse, according to research firm Sterne Agee. SA analysts Tim Rezvan and Truman Hobbs argue that the double whammy of continued supply growth amid weak demand mean that natural gas prices are still not done dropping, and slash 2015/2016 estimates across the board for the natural gas firms in their coverage universe.

Rezvan and Hobbs lower their 2015/2016 Henry Hub natural gas forecast “to $2.70/$3.20 per mcf from $3.40/$3.70. We also trim our 2015/2016 WTI forecast to $58/$65 from $63/$70. The glut of oil and gas in the U.S. will require a lengthy, at times painful, healing process for coverage companies and E&P investors. Investors should remain bottoms-up focused, commodity agnostic, and prepared to look beyond 2015 gas price woes.”

The Sterne Agee report warns that natural gas prices are likely to stay low for at least a year or two. The SA analysts argue that natural gas in storage will continue trending above historical averages for the next few months given record gas production from Appalachia. Moreover, supply growth is keeping a lid on Henry Hub gas prices and this weakness will last at least through this summer. They project that “spot prices of <$1.50/mcf will be the norm in many Appalachian hubs this summer, and expect operators without takeaway solutions to consider shut-ins as local pricing struggles to exceed transportation costs to move gas to local pricing hubs.” ...

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