Trifecta for natural gas to start the week

Mike Zaccardi, CFA, CMT

It’s been a busy week already for the natural gas and transport market. Close to my heart is what’s happening with the weather picture. July 2020 could verify as the hottest month ever for the United States, leading to very high natural gas power burns this month. There is the 300 score in bowling, 60 home runs in baseball, shooting 59 in golf – and hitting 400 cooling degree days in July for weather. We might do it. So the weather-driven demand picture is rather bullish in the near-term.

What else has happened already this week? Warren Buffett’s Berkshire Hathaway stepped in to buy assets from Dominion Energy. Dominion and Duke announced they were giving up hopes on the Atlantic Coast Pipelines (despite a favorable Supreme Court ruling just last month). The move was seen as bullish by natural gas traders as Buffett putting cash to work in the beleaguered industry.

That brings us to this morning with natural gas for August delivery trading higher once more. The latest news is a force majeure on the Columbia gas pipeline on the MXP Line south of the Mount Olive Compressor Station. TCO has unplanned maintenance today – so production will be shut-in below the pipeline work spot.

All told, August natural gas is up 25% from the low hit late last month. Go further out on the forward curve though, and you’ll see that natural gas for winter delivery actually closed in the red yesterday. The curve is flattening after many weeks of steepening. The steepening narrative was driven by near-term demand weakness and ample supply while 2021 could feature high demand and less supply. That thesis could be unraveling somewhat.

I am watching the $2.90 level of the January 2021 contract as a barometer of bullish or bearishness for 2021.

Follow me on Twitter @MikeZaccardi