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Commodities | Market Outlook

Brace Yourself For Natural Gas Supply And Demand Mismatch

On Hurricane Delta
Oct. 7, 2020 4:21 PM ET23 comments | 27 Likes
by: HFIR Energy

Summary

Back in August, when hurricane Laura was getting prepared to make an impact, natural
gas prices shot up higher into the weekend.

This happened as a result of supply and demand mismatch that took place before and
after the storm hit.

Prior to the storm reaching shore, Gulf of Mexico production was curtailed, which, in a
normal demand environment, meant lower supplies and higher cash prices.

But the storm would later impact the demand side via subdued LNG exports. Now, based
on what we know right now about the storm's trajectory, it's likely that LNG exports could
be out for a few days.

This will create a physical supply and demand mismatch where supply is falling today,
while demand gets hit later in a recovering supply scenario. This usually does not bode
well for cash prices, which may drag November futures even lower.

This idea was discussed in more depth with members of my private investing community,
HFI Research Natural Gas. Get started today »

Welcome to the hurricane edition of Natural Gas Daily!

Back in August, when hurricane Laura was getting prepared to make an impact, natural
gas prices shot up higher into the weekend. This happened as a result of supply and
demand mismatch that took place before and after the storm hit.

Prior to the storm reaching shore, Gulf of Mexico production was curtailed, which, in a
normal demand environment, meant lower supplies and higher cash prices. But the storm
would later impact the demand side via subdued LNG exports.

Now, based on what we know right now about the storm's trajectory, it's likely that LNG

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exports could be out for a few days.

If you look at the timeline of the storm, we already are seeing production shut-ins
happening now. By tomorrow, we are going to see ~1 to ~1.5 Bcf/d shut in as the storm
goes directly over the heart of GOM production.

But by Saturday, when the storm makes landfall, we could see a big drop in LNG exports.
And depending on the severity of the storm, we could have 3-5 days before LNG exports
rebound.

This will create a physical supply and demand mismatch where supply is falling
today, while demand gets hit later in a recovering supply scenario. This usually does
not bode well for cash prices, which may drag November futures even lower.

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In addition, we wrote yesterday that the cash reversal was a welcome sight, but even if
LNG exports get back to ~9 Bcf/d by the latter part of next week, and cash doesn't
respond via a jump to $2.5/MMBtu, there's more downside risk for November futures.

From a technical standpoint, we can't rule out a drop to ~$2.40 again. And if that level
doesn't hold, we have further support at $2.22 and $2.05/MMBtu.

Again, if by expiration, cash prices are unable to recover back to $2.5/MMBtu, then it's
likely November will get dragged lower as a result.

HFI Research Natural Gas, #1 Natural Gas Service

For readers investing or trading natural gas or natural gas equities, don't be blinded by the
incoming moves. At HFI Research Natural Gas, we give you guidance on natural gas
fundamentals, weather, and set-ups to help you navigate the dangerous natural gas
market. Come and see for yourself why we are the #1 natural gas research service
on Seeking Alpha.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72
hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than
from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments (23)

PT Larry
Thanks for the article.

10 Oct 2020, 06:09 PM

Money Talks!
Between now and the end of December the contango will wither away any increase in the November
contract which is why I am short HND on the Canadian side.

08 Oct 2020, 05:51 PM

Brian Cellars
@Money Talks! You're short HND? Or you're short NG with HND? Nice today if you were short
HND or holding HNU, but I prefer to be buying more HND today.

09 Oct 2020, 01:06 PM

Money Talks!
I only had a small position in HND (Short 2x NG). I had made my money the day before and re-
bought HND. I doubled up on the short today because I am betting that the 3.222 December price
will not hold short term. HNU-HND have fully rolled over into the December contract today. I am
only down about about three cents on average and betting on a correction on Tuesday.

www.horizonsetfs.com/...

09 Oct 2020, 07:31 PM

kimbillro
What a jump up @Money Talks! .

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11 Oct 2020, 04:23 AM

Brian Cellars
@Money Talks! Thanks for the clarification and link. I was also re-buying and then buying more on
Friday (fortunately not double and fortunately sold half for a small gain on the day). I don't like
being underwater on a trade, even if I'm still way up when counting the past many trades, but I'm
still far from 'loaded up', so this move up in NG is just better pricing to go short, imo. I don't think
3.222 December price will hold short or long term. There's simply too much storage. I hope NG
stays up for Tuesday when we can trade again.

12 Oct 2020, 09:05 AM

Rinascimento
All, going for my daily walk in chilly NJ, I feel like the ole Man winter is kind of early this years with wind
blowing and trees kind naked of leaves; with the Windchill, I wouldn't be surprised if people turn on the heat
at night; this should be good for NG and heating fuels demand

08 Oct 2020, 05:23 PM

Mountain Marmot
Premium
La Nina projected out West.

07 Oct 2020, 09:24 PM

kimbillro
Is that bullish or bearish @Mountain Marmot ?

08 Oct 2020, 03:26 AM

BooBooGao
@kimbillroDepends where you live

08 Oct 2020, 08:37 AM

kimbillro
What will go up @BooBooGao and @Mountain Marmot on a La Nina?

08 Oct 2020, 02:16 PM

R.Darby
Premium Marketplace
What’s the amount of lost exports per day that it’s shut down?

07 Oct 2020, 09:10 PM

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HFIR
Contributor Premium Marketplace Guide
We don't know yet, but back in August, LNG dropped to low ~3 Bcf/d.

08 Oct 2020, 12:01 AM

CO_Oil&Gas
Spot and 2021 strip all need to come down....

07 Oct 2020, 07:03 PM

kimbillro
They are stubbornly not coming down @CO_Oil&Gas .

08 Oct 2020, 03:27 AM

ofgktc
Might have sell my ung position if we get a jump...its öikely cash prices will bring november down question
is by how much...im guessing 2.30 will hold

07 Oct 2020, 05:54 PM

kimbillro
Good luck figuring it out @ofgktc .

07 Oct 2020, 05:56 PM

Michael Bryant
Contributor
Natural gas might be helped as winter approaches. $UGAZF went from $9.46/share on 7/27/2020 to
$22.65 on 8/24/2020. That is 139% in about a month. (edited)

07 Oct 2020, 05:20 PM

kimbillro
That was a good move @Michael Bryant .

07 Oct 2020, 05:32 PM

Scott W 86
And on the flip side Michael?

08 Oct 2020, 08:20 AM

marcheilweil
can the loading and departure of the ships be accelerated?

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07 Oct 2020, 04:59 PM

kimbillro
Good question @marcheilweil . My guess is no.

07 Oct 2020, 05:33 PM

HFIR
Contributor Premium Marketplace Guide
No, there's a capacity limit @marcheilweil

08 Oct 2020, 12:01 AM

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