Mike Zaccardi, CFA, CMT

Natural gas: Prices shot higher early last week on the prospects of record cold for this past weekend. Temperature verification did not disappoint mid-20s temps were widespread from the Great Lakes across to the New England. Morning lows reached the 20s into Tennessee and 30s into Alabama and Georgia. The west side of Jacksonville, FL hit 41 degrees late last week too. Snowfall was found from West Virginia to Maine. Parts of interior Maine received more than a foot of the white stuff – call it a white Mother’s Day. And there is more cold through Wednesday this week – Columbus, OH is forecast to have a May 12 freeze, busting the prior record by 3. But things will change quickly as above average temperatures are in store come this weekend and for much of next week. How does all of this impact the natural gas market? Well as is often the case, the market discounted the late season cold well in advance.

And it wasn’t just the weather that drove higher prices early last week. Yet another explosion on the TETCO pipeline (the 3rd in the past 2 years) resulted in a buying-spree on near-term prices. The high of the week was touched Tuesday morning at $2.162, but then the bears resumed control and drove the June contract to $1.82 by the weekly settle. A slightly bearish versus expectations storage report was also a reason to sell.

The forward curve was rather uneventful last week as the drama was found on the near-term part of the strip. Weather and pipelines are usually transitory events, so Cal 21 and beyond were ho-hum. January 2021 natural gas backed off multi-year highs at $3.20 to drop to near $3.00. Meanwhile, later-dated cal strips once again printed fresh all-time lows.

Turning to other market fundamentals, the same themes I touched on last week hold true as of today. We continue to see driving pick up across the country, almost regardless of state-issued lockdown orders as some folks grow restless. Public transit data still shows severely less activity versus normal conditions – a good thing! So with more people traveling around, that should be an indication of slightly higher power demand versus the lowest levels that may have been seen in early to mid-April. So that’s the COVID-19 story. In other news, LNG prices continue to converge and US nuclear output is near the 5-year normal. US dry gas production fell sharply in April, but has bounced modestly in the last few days, care of a little extra output from the Northeast.

Oil: Oil prices surged 25% last week as the recovery off the lows three weeks ago continues. Friday’s horrific employment report was met with buyers across most risk assets. The market continues to digest output cut plans from oil producers big & small. Storage at Cushing, OK is elevated, but appears unlikely to top-out at the 77-million-barrel capacity level due to earlier than expected output declines.

EIA news: U.S. energy-related carbon dioxide (CO2) emissions declined by 2.8% in 2019 to 5,130 million metric tons (MMmt), according to data in the U.S. Energy Information Administration’s (EIA) Monthly Energy Review. CO2 emissions had increased by 2.9% in 2018, the only annual increase in the past five years. Because of continuing trends in how much energy the U.S economy uses and how much CO2 that energy use generates, energy-related CO2 emissions in 2019 fell more than energy consumption, which declined by 0.9% in 2019, and gross domestic product, which increased by 2.3% in 2019.

EIA Weekly Natural Gas Storage Report: Last week, the EIA reported a build of 109 Bcf for the week-ending May 1. Consensus was +106 Bcf with a forecast range of 95 to 112. ICE futures trading had indicated an increase of 104 Bcf. The year-ago build was 96 Bcf and the 5-yr average was 74 Bcf. Storage is now 2.319

Chart used with permission from TradingView.com