Natural Gas – LNG is Creating a Difference

The LNG carrier in Ishikari Bay, Japan
Credit: CC/とまりん♪

The natural gas market is reportedly at a critical time of the year as withdrawals from storage in the US would shift to injections. The inventories reportedly decline lasts from November until March each year, and for the rest of the year, stockpiles tend to build to prepare for the next peak season during the coldest months of the year.

Meanwhile, the price action in the natural gas market has been bearish since mid-November. The low for 2018 was reported at $2.53 in February, and in February 2019—and the price returned to just above that level. Meanwhile nearby futures traded to a low at $2.543 per MMBtu. Natural gas went into the recent withdrawal season—and as the injection season gets underway, stocks are still at their lowest level in years.

The Energy Information Administration (EIA) reportedly announced its first injection into storage for 2019. The market had expected a small withdrawal of 15 bcf. However, the EIA reported that the stocks rose by 23 bcf recently. And, the withdrawal season typically ends during the final week of March, and 2019 was no exception. Stockpiles of the energy commodity are said to be going into the injection season which will run through November at their lowest level since 2014 when they fell to only 824 bcf.

Now, natural gas would reportedly flow into storage across the US over the next six months—and likely that bearish sentiment would increase. The price of natural gas also dropped in the aftermath of the latest EIA release.

Though rising stocks is not a bullish factor for the natural gas market, selling over the coming sessions could present a buying opportunity if the pattern that has been in place since 2016 remains intact in 2019. Meanwhile, the bears would be focusing on the ever-increasing level of production in the US which has made the nation the world’s leading producer of the energy commodity. The shale regions of Marcellus and Utica of the US have reportedly created a perfect environment for rising production, in the backdrop of technological advances in hydraulic fracturing and friendlier regulatory environment under the Trump administration.

Meanwhile, power generation in the US that depended on coal-fired generation has transitioned to natural gas. And, liquefied natural gas from the US now flows around the world to locations where the price is trading at higher prices. Asian demand for US gas is also rising hastily. In conclusion, while the supply side of the fundamental equation for natural gas has expanded substantially, so has the demand side.

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