Welcome to the hurricane edition of Natural Gas Daily!
Back in August when hurricane Laura was getting prepared to make an impact, natural gas prices shot up higher into the weekend. This happened as a result of supply and demand mismatch that took place before the storm hit and after the storm hit.
Prior to the storm reaching shore, Gulf of Mexico production was curtailed, which in a normal demand environment meant lower supplies and higher cash prices. But the storm would later impact the demand side via subdued LNG exports.
Now based on what we know right now about the storm’s trajectory, it’s likely that LNG exports could be out for a few days.
If you look at the timeline of the storm, we already are seeing production shut-ins happening now. By tomorrow, we are going to see ~1 to ~1.5 Bcf/d shut-in as the storm goes directly over the heart of GOM production.
But by Saturday when the storm makes landfall, we could see a big drop in LNG exports. And depending on the severity of the storm, we could have 3-5 days before LNG exports rebound.
This will create a physical supply and demand mismatch where supply is falling today, while demand gets hit later in a recovering supply scenario. This usually does not bode well for cash prices, which may drag November futures even lower.
In addition, we wrote yesterday that the cash reversal was a welcomed sight, but even if LNG exports get back to ~9 Bcf/d by the latter part of next week, and cash doesn’t respond via a jump to $2.5/MMBtu, then there’s more downside risk for November futures.
From a technical standpoint, we can’t rule out a drop to ~$2.40 again. And if that level doesn’t hold, we have further support at $2.22 and $2.05/MMBtu.
Again, if by expiration, cash prices are unable to recover back to $2.5/MMBtu, then it’s likely November will get dragged lower as a result.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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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