Welcome to the overlook the near-term edition of Natural Gas Daily!
There’s really only one explanation for the intraday reversal we are seeing in natural gas today, and keep in mind that this reversal is coming after the weekend saw a neutral weather outlook plus slightly bearish 15-day forecast, and most importantly, ~88 Bcf/d Lower 48 production.
We saw Lower 48 production increase ~4 Bcf/d w-o-w, which is considerable given that total shut-in production was only around ~2 Bcf/d.
And while on the surface this rebound did exceed our expectations and should be construed as bearish, a bit of perspective is needed.
On a total gas supply basis, we are lining up with 2018. Canadian natural gas production also has steeply declined since 2018, resulting in lower net exports to the US.
Notice that relative to 2019, total gas supplies are some ~7 Bcf/d lower year-over-year? On the demand side, LNG exports and Mexico gas exports alone will be ~4 to ~5 Bcf/d higher y-o-y.
This stark divergence between supply and demand was captured in this chart we published a few weeks back.
As you can see, relative to December 2019, by year-end, we will have total net divergence of as much as ~11 Bcf/d between supply and demand.
So while the cash market is still weak and the early November forecast isn’t something the bulls should get excited about, this is not the time to get lost in the trees for the forest.
As a result, we have gone long EQT (NYSE:EQT) to reflect our bullish sentiment for natural gas structure longer term. We think the 2021 curve is undervalued to where it’s trading today and the best way for us to reflect this trade is via a long position in a natural gas producer that’s discounting more than what the curve is at today.
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Disclosure: I am/we are long EQT. 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.
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