Long natural gas is still among commodities' best reward-to-risk opportunities
May 6, 2024
Key Observations:
Natural gas advance gathers steam as pipeline repairs conclude and demand picks up. U.S. industrial consumption of gas has grown by +2.68 Bcf/d (+12.8%) ytd YoY, while U.S. use of gas for power generation has grown by +1.51 Bcf/d (+5.0%) ytd YoY. This consumption more than offsets foregone U.S. heating demand in the residential and commercial gas segments due to the hot winter: –1.26 Bcf/d (–3.9% ytd YoY).
On Friday (May 3), NG1 settled at $2.14 and the Oct-24 contract settled at $2.63. These prices had closed at $1.71 and $2.51, respectively, on Apr 17, when we pointed out that "bottlenecked U.S. supply creates an excellent entry point for longs in Oct-24 tenors" (World Investors: Look Past Temporary U.S. Gas Glut, 17-Apr-2024).
Our first target for NGV24 is $3.00. Take note that the 12-month NYM strip is at $2.99 this morning, up from $2.75 on Apr 15 and $2.40 on Feb 19 (the ytd low at closing prices).
EU CO2 allowance: investment funds held a net short position of –18,440 contracts as of Apr 26. This was their smallest net short since Jan 5 and less than half as big as their largest net short position in 6+ years (–39,200 contracts, Feb 23). These data foot with other signals that Europe's industial economics have turned a corner.
Beneficial for: EQT, RRC, Schneider Electric.
Source: Bloomberg, Genscape, NYM, ICE, MiFID, Blacklight Research.
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