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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When United States natural gas 2014 build season ends this autumn, assuming normal weather and moderate US economic growth, working gas inventories in the key Producing Region probably will be between 1030bcf/1056bcf and 1170bcf. Suppose US gas output over the next several months significantly exceeds the Energy Information Administration’s May 2014 forecast (as some natural gas clairvoyants claim it will). Then inventories may ascend from the EIA’s current estimate of over 1020bcf to around 1170bcf. Based upon historic inventory patterns, especially those of 2006 to the present, most marketplace participants probably view around 1173bcf as average Producing Region inventory for the end of build season. Historical analysis indicates that a move to around 1232bcf, though unlikely, should not be discounted. In any event, the Producing Region probably will not face containment problems this year.

The NYMEX natural gas marketplace during the course of build season probably will remain in a sideways trend, with the range being 3.80/4.00 to 5.00/5.20 (nearest futures continuation). The spring 2013 top (5/1/13 at 4.444) represents a midpoint to monitor. Despite the bearish price drop since late February 2014, the current Producing Region and overall US inventory picture for the balance of build season still appears quite bullish. What happens if as build season marches onward, actual overall US inventories look unable to increase significantly relative to the EIA’s May 2014 prediction for end build season 2014? Then a breakout above 5.00/5.20 resistance is probable. Suppose Producing Region inventory looked headed toward around 1230bcf, and that a comparable large percentage inventory gain also appeared likely in the Eastern and Western regions. Then a price move toward 3.40 may occur.
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US Natural Gas Inventory Building- the Producing Region Picture (5-18-14)
Charts- NYMEX natural gas and coal (5-18-14, for essay US Natural Gas Inventory Building- the Producing Region Picture)


The lofty pinnacle created around 611 four years ago (1/7/10; NYMEX nearest futures continuation) is a distant memory for many marketplace visionaries. So are much higher price peaks prior to this. Especially since mid-2011, US natural gas production jumped due to the shale gas revolution as well as output associated with the petroleum drilling boom. This has built confidence that ample natural gas supplies generally will keep prices fairly subdued. Allegedly inevitable North American liquefied natural gas exports will not become sizable for at least another two or three years from now. Forecast US electricity demand for calendar 2014 is essentially flat relative to 2013. The NYMEX natural price (nearest futures continuation) even fell under two dollars two years ago (190 bottom; 4/19/12)! Recall the important resistance established this spring at 4.444 (on 5/1/13; challenged but not broken by the recent high on 12/13/13 at 4.443). So how on earth could the front month NYMEX price eventually (even if not this winter) ever sustain itself over 450, or even fly up to 500, 600, or even higher?

Yet inventory obviously still matters. History shows that weather can slash working gas inventories in the Producing Region and elsewhere, sometimes dramatically. Thus despite widespread faith in growing production and other supply/demand variables, high or even average national inventories, particularly from the days coverage perspective, are not guaranteed. Consequently if overall US inventories plummet far enough, and even if this is relatively unlikely (as of now) for winter 2013-14, five or six dollars (and yes, even higher) NYMEX prices are not inconceivable.

In addition, alternative “investment” in commodities has reduced the amount of “free supply” in natural gas. This buy-and-hold for the long run activity probably has been more of a factor since around 2003 (or at least 2006) than in the preceding time span. In any event, for any given arithmetical or days coverage gas inventory level nowadays, such investment makes stocks tighter than they appear, though experts can debate how much. “Speculative” buying enthusiasm also may rally prices.

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US Natural Gas Inventory- the Producing Region Drawing Board (12-16-13)


When United States natural gas 2013 build season ends this autumn, inventories in the key Producing Region probably will be around 1200bcf, plus or minus five percent (1140bcf to 1260bcf range). Based upon historic inventory patterns, especially those of 2006 to the present, most marketplace participants probably would view around 1200bcf as average. Unlike build season 2012, the Producing Region will not confront notable containment issues this year.

Suppose a bear trend for NYMEX natural gas (nearest futures continuation) emerged from the recent highs over 440. One time to look for an important bottom is in late August/calendar September 2013.

Historical review of Producing Region inventory levels and trends alongside NYMEX natural gas price trends and levels reveals a rough pattern. Assume that gas prices establish an important peak. Although the history is relatively brief, there is a seasonal tendency for natural gas prices (NYMEX nearest futures continuation) to establish important bottoms sometime around late calendar August through calendar September and thus in the later stage of Producing Region (and US) build season. See the table above. Several of these lows were major trend change points.

This is a guideline, not a destiny.

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Natural Gas Inventory- the Producing Region Scenery (5-6-13)