Cash NG at lowest single-day price since 1998

Mike Zaccardi, CFA, CMT

Natural gas prices have fallen to fresh all-time lows on the July 2020 contract, though the continuous prompt-month remains about 15 cents above its 25-year lows hit earlier this year.

What’s remarkable though is next-day cash Henry Hub pricing hit the lowest non-weekend price since December 7, 1998 for June 16’s flow date at $1.46. I think I was in fifth grade.

Taking a look at the market, there were a few bearish factors to kick-off this week that led to the dramatic fall prices.

1. Weaker weather trends over the weekend. The European and American weather model ensemble data turned less hot for the back-half of the June, though still suggesting above average temperatures for many in the country.

2. LNG exports continue to tick down and run sharply below levels from earlier this year (pre-COVID-19). Foreign markets’ LNG prices have collapsed, leading to less reward for important from the US. The European storage situation is particularly precarious due to recent seasonal weather trends and of course devastating demand impacts from COVID.

3. Production ticked up. US dry production has steadied its fall in the last few weeks. Production had dropped hard from the November 30, 2019 high to the May lows, but has since flat-lined in its trend and even managed to tick up late last week and over the weekend.

So there are a slew of factors that contributed to an expected loosening of the supply/demand situation. Nevertheless, very low prices and warm temps will mean record power burns in the next few weeks. Also interesting – exports to Mexico are at 1-year highs while imports from Canada are very soft. So it’s not all bleak across the supply/demand analysis.

But sometimes price is truth. Momentum is a powerful thing in financial markets. Right now, the bears are in control.

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Chart source: EIA