Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

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Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.


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US NATURAL GAS: CAUGHT IN THE MIDDLE © Leo Haviland February 1, 2016

“So much trouble in the world…
The way earthly thin’s are goin’
Anything can happen”. Bob Marley and the Wailers, “So Much Trouble in the World”



In economics, politics, and other cultural fields, players create a variety of competing perspectives. They select between and arrange a variety of diverse variables to produce their arguments and conclusions. In commodity, currency, interest rate, and stock marketplaces, bulls and bears therefore tell a variety of contending stories. In natural gas as in other marketplace battlegrounds, an array of speakers creates assorted viewpoints fighting to attract attention and persuade eager audiences.



“Dangerous Times in US Natural Gas” (11/2/15) concluded: “The probable range for the United States natural gas marketplace (NYMEX nearest futures continuation basis) for the next several months is a relatively broad avenue between major support at 1.65/1.90 and significant resistance at 3.10/3.45.” The NYMEX natural gas major bear trend that followed 2/24/14’s major peak at 6.493 smashed through 4/27/15’s 2.443 minor low, 10/27/15’s 1.948 interim low, and the last prior major bottom (1.902 on 4/19/12), crashing to 1.684 on 12/18/15. Assuming normal weather for the balance of winter 2015-16 and spring/summer 2016, this range probably will persist for the next several months as well.

The high since December 2015’s low is 1/8/16’s 2.495. What would enable US natural gas prices (nearest futures) to sustain travels over 3.00? It probably will require significantly colder temperatures for the balance of winter, a blazing spring and summer, or (and especially) noteworthy cuts in natural gas production. Stronger than expected US (and global) economic growth would help rally natural gas prices. A major bull move in commodities “in general” (and especially in the petroleum complex) and a significant reversal of the major bull move in the broad real trade-weighted US dollar to some extent would assist a bull move in natural gas.

However, a somewhat significant containment risk (supplies too high relative to available storage capacity), nevertheless exists for US natural gas around the end of calendar 2016 build season. If containment fears grow stronger, and especially if actual problems develop, the 1.65 floor could be broken. In addition, US economic weakness (especially if accompanied by similar slumps around the globe), renewed feebleness in commodities (particularly in the petroleum world), and a continued strong trade-weighted US dollar would help to keep US natural gas prices under pressure.


Historical analysis indicates the major bear trend in US natural gas from February 2014 to December 2015 voyaged sufficiently far in price and duration terms to conclude that a trend shift from bearish to sideways occurred with December 2015’s low. However, the dramatic February 2014 to October 2015 price tumble is not the greatest or longest on record. So a further descent in NYMEX natural gas would not be unprecedented.

Anticipated end March 2016 gas inventories probably will be high in both arithmetic (bcf) and days coverage terms, a bearish consideration. However, based upon US Energy Information Administration (EIA) anticipated end October 2016’s 52.1 days coverage level slides 3.4 days beneath the 2006-15 end October average of 55.5 days and 1.5 days under 1990-2015’s 53.6 days.

Nevertheless, modest days coverage levels for October 2016 does not eliminate a containment danger; one should focus closely on arithmetic levels. The days coverage perspective of course does not provide a complete viewpoint on the natural gas inventory situation and related price risks. After all, arithmetic quantities (bcf) of gas must be put in arithmetic storage places. Especially if little new natural gas storage capacity has been (and is being) created, containment problems could emerge around the end of the 2016 inventory build season (roughly around end October 2016). And currently, the containment risks for the end of build season 2016 are not insubstantial; this bearish potentiality weighs on prices.

Yet sustained low natural gas prices could reduce production more than some soothsayers forecast. This would help reduce containment risks. Note the big drop in US natural gas rig counts. A sustained slump back under 2.00 might boost electric power switching from coal to gas.

Everyone knows that much can happen between now and 2017, whether in natural gas or elsewhere. Yet based upon the EIA’s bcf prediction, natural gas days coverage at end October 2017 probably will be less than average, a bullish factor. And the EIA’s bcf arithmetic inventory forecast for end October 2017 implies there probably will not be a containment problem around the end of build season 2017.


Natural gas prices often travel substantially independently of both petroleum (and commodities “in general”) and so-called “international” or “financial” marketplaces and variables. Trend changes in NYMEX natural gas need not roughly coincide with one in the petroleum complex or commodities in general, or currency, stock, or interest rate playgrounds.

However, especially since mid-to-late June 2014 (NYMEX natural gas nearest futures interim high 6/16/14 at 4.886) and into calendar 2015 (gas interim top 5/19/15 at 3.105), bearish natural gas price movements intertwined with those in the petroleum complex (and commodities in general) and the bull move in the broad real trade-weighted US dollar. Such natural gas retreats to some extent paralleled slumps in emerging marketplace stocks. Note also the timing coincidence between May 2015’s natural gas top and the S+P 500’s 5/20/15 peak at 2135. In regard to the timing of the S+P 500’s May 2015 high, note that the nominal broad trade-weighted dollar (Federal Reserve, H.10, which has daily data) made an interim low at 112.8 on 5/15/15 before appreciating further.

See “The Curtain Rises: 2016 Marketplace Theaters” (1/4/16), “Japanese Yen: Currency Adventures (2007-09 Revisited)” (1/14/16), “Commodities: Captivating Audiences” (10/12/15), and various related essays.

Natural gas prices indeed can trade “on their own”. But suppose a sustained bull move finally appeared in commodities “in general” (especially petroleum). Worldwide OECD industry and United States petroleum stocks are very elevated. OPEC next meets 6/2/16. It remains determined to capture market share and induce output cutbacks by high-cost oil producers around the world (including some American and Canadian ones). But is crude oil under 30 dollars a barrel “irrational”? The chairman of Saudi Arabia’s state oil company, Aramco said: “’The market has overshot on the low side and it is inevitable that it will start turning up’”, predicting higher prices by the end of the year.” (Financial Times, 1/22/16, p20). Will OPEC reach agreement with non-OPEC nations such as Russia to boost prices? Might OPEC hold an emergency meeting?

Key global central banks battle to ensure economic growth, create sufficient inflation (avoid deflation), and reduce unemployment. The European Central Bank recently suggested it might ease its already highly accommodative policies further (ECB Statement and Press Conference, 1/21/16). The Bank of Japan recently (1/29/16) eased its lax monetary policy even further, adopting negative interest rates. Will the Federal Reserve delay additional interest rate increases?

The Fed and its allies probably do not want the S+P 500 and related stock marketplaces to crash under their January 2016 lows. They also probably do not want the dollar’s bull move to extend much (if at all) beyond its January 2016 high. The US dollar’s major bull trend has been long and powerful. From its July 2011 major low around 80.5 to the recent January 2016 high at 101.2, the broad real trade-weighted dollar has climbed 25.8 percent (Federal Reserve, H.10; monthly average). What will happen to natural gas prices if the S+P 500 (and emerging marketplace stocks “in general”) rallied substantially? What if the US broad real trade-weighted dollar weakens notably (even if it remains relatively strong)?

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US Natural Gas- Caught in the Middle (2-1-16)

US NATURAL GAS: BURNING UP (c) Leo Haviland July 23, 2012

Focus on natural gas days coverage levels for end October 2012 (around the close of inventory build season) and end March 2013 (approximate end of draw period) in the context of price history. Assume normal weather and relatively lofty petroleum prices. What does this perspective reveal? This not only indicates that April 2012’s 190 was a major low and that major support exists around 220/240 (NYMEX nearest futures continuation). It also justifies a challenge on significant resistance around 317/330. An ascent above that range sometime in the next several months will be difficult but not surprising.

However, days coverage probably will have to sustain a decline in its excess relative to its long run average (1990-2011) to around three days or fewer for natural gas to significantly challenge major resistance looming around 400. The sustained reduction in days coverage to such levels likely will occur eventually, even if it does not occur by the end of March 2013.

However, the duration of about three months from 4/19/12 to date is about that of the 2010 and 2011 spring rallies. This time element warns that one should be cautious about declaring a further big upward move lies in store for the very near term, especially given the proximity of the 317/337 resistance.

But the 2009/early 2010 period teaches an important lesson for natural gas. It strongly suggests that elimination of containment fears, when followed by a dramatic reduction in days coverage, can help to propel natural gas prices much higher (and perhaps quite quickly). Inventory prospects several months out, not just the current (or very near term), matter.

So from the inventory days coverage standpoint, and particularly when read relative to the 2009 context and its eventual price rally from 241, what follows? This huge reduction in oversupply from March 2012 to October 2012 strongly indicates that there was a major low in April 2012 (not a mere interim bottom), that prices will not easily (if at all) come back to that level, and that a major bull move from that April 2012 low (not a mere interim rally) is underway.

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Natural Gas- Burning Up (7-23-12)
Natural Gas Chart (NYMEX nearest futures)(7-23-12)


United States natural gas inventories in the key Producing Region at end winter draw season 2011-12 broke records for that time of year. At their low point on 3/9/12, Producing Region working gas inventory of 965bcf soared about 40.5 percent beyond winter 2010-11’s 687bcf and winter 2008-09’s 690bcf. The new record plateau for the end of draw season blasts 123.9 percent above the end draw season average (1994-2011). Producing Region inventories remain sky- high. On 4/20/12 they were 1041bcf. These jump 31.9 percent above last year’s level at this time (789bcf; 4/20/11). When 2012 natural gas build season ends this autumn, stockpiles probably will be lofty relative to long run history.

It is a truism that much can (and will) happen in the natural gas supply/demand battlefield and related theaters between now and the close of 2012 build season. Assume normal summer weather and continued modest American economic growth. Many marketplace generals declare that brimming inventories definitely or almost certainly will cause the Producing Region (“PR”) to suffer notable containment (“overflow”, “overcapacity”) problems this fall. Not only gas and power trading insiders, but also numerous Main Street spectators and assorted political guardians, fervently speak of the explosive gas production increase of the past few years. Because end winter 2011-12 PR gas inventory already stood high in arithmetic (bcf) terms, PR stockpile increases at around the average historical rate (1994-2011 era) during 2012 gas build season will stretch capacity in this key territory.

The PR indeed faces significant containment risks. By end build season 2012, these risks may burst into actual physical problems for much of the region. However, an alternative scenario is more likely. For the PR area as a whole, although the containment challenge probably will be a very close call, the region probably will scrape by. In any event, and as of now, an excessive inventory relative to available storage situation throughout the PR is significantly less certain than many proclaim.

Why question the widespread faith that the PR containment problem will be severe and widespread? Gas demand is rising. Substantial fuel switching from coal to natural gas has occurred and likely will continue. Despite the recent shale gas boom, as well as gas production associated with crude oil output in some locations, US natural gas production growth (overall output) may be less than sentinels forecast. Not only are prices still depressed. The US gas rig count has retreated dramatically.

A crucial consideration for the containment debate in the PR (and elsewhere) is the amount of gas storage available around the time of build season inventory peak. Admittedly, any current viewpoint on US gas storage capacity for the end of build season 2012 is quite conjectural. Nevertheless, relative to the most recent Energy Information Agency (“EIA”) estimates of demonstrated peak working gas storage capacity, sufficient storage in the PR probably has been and will be created to avoid a significant containment problem this autumn.

To assess the likelihood of severe containment problems throughout the Producing Region (and related natural gas price implications), the crucial issue therefore is how much natural gas storage probably has been and will be constructed (developed) since April 2011 (the most current EIA overview).

Despite some seasonal tendency for prices to finish a bear move (or end an important stage in a downtrend) in late summer or autumn, it does not follow that prices drop off a cliff from the preceding end winter (or early spring) without an interim rally. The price could make a low, rise for a few months, and then drop to make a bottom in (for example) late August or calendar September.

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Natural Gas Inventory- the Producing Region Story (5-1-12)

US NATURAL GAS- BUILDING ENTHUSIASM © Leo Haviland, April 16, 2012

Assuming normal weather, the current severe United States natural gas oversupply situation will become quite a bit less so in days coverage terms as inventory build season 2012 proceeds (and as winter 2012-13 draw season occurs). This will support prices. However, unless more substantial production cuts actually emerge, significant natural gas oversupply relative to historical averages probably will persist through winter 2012-13. Containment risks for the 2012 build period have not disappeared, but they probably will be less severe than many believe.

The average build from end April to end October is around 1784bcf. Days coverage rises about 29.4 days. A few years had slight additional builds into calendar November. For example, inventories peaked at 3837bcf on 11/27/09 (weekly statistics). The 2010 high was 3840bcf on 11/ 5/10. And in 2011, 11/18/11’s 3852bcf exceeded 10/28/11’s 3794bcf.

On 4/6/12, working gas inventories were 2487bcf, soaring 55.5 percent over the year-ago week’s 1599bcf. End April 2012 surely will represent a new record for that calendar month in bcf terms. Suppose end April 2012 stocks reach 2600bcf. Relative to full calendar year forecast demand of 69.6 bcf/day (EIA’s Short-Term Energy Outlook;“STEO”; 4/10/12; Table 5a), days coverage will be 37.4 days (2500bcf equals 35.9 days). This will break through 2006’s “recent history” 32.7 day ceiling of 32.7, though it falls slightly beneath 1991’s high for the 1990-present period. April 2012 leaps above April 2011’s 1789bcf and 26.8 days coverage. Compare end April all-time lows of 854bcf and 13.8 days coverage (1996).

Looking forward, depressed natural gas prices relative to coal probably will generate substantial fuel switching from coal to gas. Thus the stock build from end April to end October 2012 may be less than average.

Lows in arithmetic builds from end April to end October (1990-present) are 1991’s 1332bcf and 2002’s 1457bcf. The tiniest days coverage increase was 2002’s 23.1 days. In 2003, stocks ballooned a record 2237bcf over these months; 2003’s 36.7 day rise in coverage remains the record. The calendar 2011 inventory rise was 2015bcf, or 30.2 days coverage.

Suppose end October inventories are 4050bcf. That will represent 58.2 days coverage (4050bcf divided by calendar year 2012 average daily consumption of 69.6bcf per day). This is a bearish amount, for it is about 4.5 days above the 53.7 day end October average. However, it is two and one-half days below end October 2009’s 60.7 days. At 4000bcf, days coverage is about 57.5 days; at 4100, days coverage climbs to 58.9 days.

Numerous supply/demand variables of course intertwine to affect natural gas price levels, trends, and relationships. Perhaps current high inventory levels will continue to pressure prices, especially in nearby months. However, for NYMEX natural gas (nearest futures continuation basis), remember the major bottom in September 2009 (9/4/09) was around 241. Assume that end October 2012 US inventory appears headed for “about” 57.5 to 58.9 days coverage, less than October 2009’s 60.7 days. Then all else equal, for NYMEX natural gas prices “around the time of the later months of 2012 build season” to sustain lows under September 2009’s price depth, there probably will have to be noteworthy containment problems.

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Natural Gas- Building Enthusiasm (4-16-12)