Natural Gas: From summertime sadness to winter wonderland – TDS

Expected heat in July is unlikely to lift Henry Hub natural gas sustainably higher this summer, as poor demand remains the sole overwhelming negative factor in the market. But while summer gas prices have many bearish factors to contend with, the outlook is in fact promising as we move into the winter season, per TD Securities.

Key quotes

“Bloated inventory levels, a mild winter to start 2020 and coronavirus driven demand concerns have weighed heavily on natural gas prices this year and are likely to keep prices under wraps through the summer. While gas has been handed a lifeline of support via production shut ins and associated gas declines, the recent rallies due to hot July weather forecasts are unlikely to be enough to take benchmark gas prices sustainably above $2.00/ MMBtu for the summer season.” 

“The summertime sadness could very well make way to a winter wonderland as a prolonged period below marginal cost ($2.50/MMBtu), minimal hedging through 2021, and infrastructure bottlenecks in the Northeast keep production lower YoY, while the demand profile normalizes”.

“The combination of still lower production levels along with a normalizing demand profile, particularly the return of LNG flows after rebalancing takes place through Q3, could see gas outperform to end the year and into 2021. In that context, current 2020/21 winter prices are likely to remain elevated just north of $2.75/MMBtu, if not $3/ MMBtu, should weather add an additional layer of bullishness. The inventory cushion built this summer may very well prove to be a blessing to prevent major tightness this winter.”