Key Points: When we compare the week ended 10/5/18 to the previous week ended 9/28/18, we see tighter conditions which should impact the working gas storage data which the EIA will report this Thursday. Comparing Bloomberg data for these weeks, we see production has sagged while power burn and exports have gone up. Normally, the EIA data report for the first week of October shows the highest post-summer injection. But given this pending report week looks tighter than the prior report week, we struggle to see how the EIA will report in line with the current 89 BCF consensus expectation which also happens to be the 5 year average for the week. So a lower than normal/expected injection could be bullish for gas prices on Thursday even beyond the $3.31/MMBtu spot or $3.27/MMBtu prompt month price seen today. Furthermore, by the time of the Thursday report, we think the next couple of days this week will shed more visibility on the even tighter conditions that are emerging in the current calendar week ended 10/12/18. So this time next week we may be discussing a miss on the 5 year average for the October 5 week and tighter market fundamentals as we ponder the storage number for 10/12 and the likelihood of the next leg up for natural gas prices going into a heating season with storage that may not even reach 3.2 tcf..
Supply - Positive
Supply side factors should prove to be a supportive factor for continued gas price gains in this report week and ahead as US production tightens and as producers in the Gulf of Mexico shut in for Hurricane Michael.
Weather - Positive
Weather should continue to be a supportive factor in the week ahead for continued gas price gains as Hurricane Michael rips through the U.S. Southeast and as cooler weather filters down from the North to induce lower than average temperatures across an expanding region in the U.S. consuming heartland.
Trader Sentiment – Neutral
Trader sentiment will likely prove to be a neutral factor in the week ahead, with positive sentiment catching up with positive fundamentals.
Storage - Positive
We anticipate that reported storage changes will likely underperform or barely just meet the five year average rate of 89 BCF for the week which is also the consensus at present. Yet in a week which typically marks the peak post-summer season, we see little likelihood that we will to the 5 year norm of 3.8 tcf by the November 1 commencement of the 2018/2019 heating season, and we think a realization will begin building in the market that we may not even reach 3.2 tcf. We get to that conclusion by noting that even if the EIA reports normal injections over the next 4 weeks, we would still be short of 3.2 tcf given our low starting point from the 9/28 report week.
Demand - Positive
We expect industrial and net export demand to be inline while domestic utility demand to be a positive factor in the week ahead as space heating and gas-fired peakers and base load units power generation make up for solar-busting cloud cover east of the Mississippi and for the nuclear and other plants that make plans or react to disruptions from prior flooding in the Carolinas now to likely be followed by the landfall of Hurricane Michael.
Flows - Neutral
Pipeline startups and approvals in Appalachia are in the news but we see a slow ramp that should not affect gas supplies this week significantly. We do not anticipate significant upset on pipelines in the Southeast as a result of Hurricane Michael but we note that Cove Point LNG is in the projected cone of the storm well past the initial landfall on the Gulf Coast.