Natural Gas Prices Surge As Traders Start Pricing In Falling Associated Gas Production - NGF 3/9
Mar. 09, 2020 6:48 PM ET
Summary
Today was one of the largest intraday reversals we have ever witnessed in natural gas.
The morning reversal and our analysis over the weekend that natural gas is the immediate beneficiary from falling oil prices led us to go long UGAZ one last time.
Our trade does not have a stop-loss given the current market volatility, and the timeframe of this trade is going to be very long-term in nature.
By May, traders think we could have Lower 48 production declining to ~90 Bcf/d leaving the market particularly vulnerable over the summer months. At ~90 Bcf/d, the market will be in a deficit of ~4.5 Bcf/d with the deficit pushing as high as ~8 Bcf/d if the weather is much warmer than normal.
If associated gas production falls with oil prices remaining below $40/bbl, the market may need to price in a complete shut-in for US LNG exports. We estimate the summer shut-in price to be $5 to $6/MMBtu.