NGM4 has moved from $1.96 to $2.31 since the Apr 17 close
May 9, 2024
Key Observations:
A weekly inventory report from the U.S. Department of Energy (DOE) was the primary catalyst for today's 5% advance in Jun-24 NYM natural gas (expiry May 29). The DOE data show a +79 Bcf increase in U.S. working gas stocks. While the size of this injection is virtually identical to the build in the same week a year ago (+78 Bcf), the price action suggests the increase was smaller than what consenus expected. We note the median estimate in a Bloomberg survey was +86 Bcf in a range from +77 Bcf to +94 Bcf (n=13).
Institutional investors collectively have run net short positions in this market 92% of the time since June 2022. Coming into the reference week, their books altogether were net short 103,768 contracts, according to CFTC data. These traders have run larger net shorts in gas in fewer than 1 of 5 weeks over the past decade. The short-side risk alone exceeded 769K contracts (98th percentile), or more than $15 billion at the Apr 30 forward curve.
Recent subzero prices in the physical markets goaded pessimistic sentiment. However, myopic attention to a near-term, local supply glut appears to have overlooked the substantial improvements emerging more broadly in gas demand worldwide. Ytd, U.S. demand for gas has increased by 2.63 Bcf/d YoY in the industrial sector and by 1.55 Bcf/d YoY in the power sector, more than offsetting the foregone gas heating demand in the hot winter.
Benefits: NGV4, AR, CTRA, FANG, RRC, EQT.
Source: Bloomberg, CFTC, Blacklight Research. Note: for further reading, see World Investors: Look Past Temporary U.S. Gas Glut (17-Apr-2024).
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