U.S. gas markets have priced to clear excess spot supply–now, bullish
May 3, 2024
Key Observations:
At official closes on May 2, Waha cash natural gas is at +$0.49 per MMBtu, for only the second above-zero close since Apr 1 and the strongest print since March 1, 2024. This price was at –$2.18 as recently as Apr 26 and –$3.54 on Apr 15. Since Mar 5, Waha cash has closed below zero on 35 of 43 days (81% of closes). The fact the cash market in the Permian Basin moved to positive prices on Thurs May 2 is a notable, and important, advance from the subzero world.
It will likely still take some time for the excess gas inventory on the Gulf Coast—yet another example of the consequences of the hot 2023-24 winter—to clear out through price-driven mechanics. But there can be no doubt that these price-driven processes have now reversed a track in train since January 2024. The spread between cash prices at the Waha Hub and the Houston Ship Channel is now just +$1.11 per MMBtu and tightening. This is the tightest spread since Apr 1 and compares to +$4.79 as recently as Apr 15 (chart).
In the NYM futures market, the prompt Jun-24 contract closed at $2.04 per MMBtu. This close market a strong gain of eleven cents per MMBtu on the day for the third-highest daily settlement since Apr 10. This futures contract price averaged $3.23 per MMBtu during May 2023. We see no reason why prior prices could not be reclaimed in 2024. Sentiment is unduly negative.
Source: Bloomberg, GI, NYM, Blacklight Research.
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