Head of Commodity Strategy
Summary: US and international natural gas prices remain under pressure from a continued mild winter across the Northern Hemisphere, high production and now perhaps also a slowdown in LNG export to virus-hit China.
NOTE: Weekly natural gas storage change date is due from the US Energy Information Administration at 1530 GMT. A survey points to a 130 Bcf (Billion cubic feet) reduction last week. Not far from the 5-year average of -143 Bcf for this week. If realised it would bring total stockpiles to 2,616 Bcf, some 9% above the 5-year average. I will post the result and market reaction on my Twitter @ole_s_hansen
US natural gas prices remain under pressure from a continued mild U.S. winter, high production and now perhaps also a slowdown in LNG export growth. Bloomberg reported earlier today that Chinese LNG buyers have started to invoke force majeure telling suppliers it can’t honor contracts.
Rising U.S. production can either go to domestic consumption, being exported through pipelines to its neighbors or sold as LNG to the rest of the world. Underground storage facilities are used to soak up excess supplies during the injection season from April to November and vice versa during the high consumption winter months.
The latest obstacle to hit the market is the reduced demand from China while the virus disruption plays out. The above charts show production which has slowed in recent weeks and the flow to LNG export terminals which has more than doubled during the past year and which is now at risk of slowing. Also it highlights the compressed prices seen across the world with the Dutch and Japan-Korea benchmarks both trading at multi-year lows.
In the below chart we have projected last year’s weekly storage changes onto the current total. It shows that a repeat of last year’s strong injection season could bring the total in storage above capacity by November. The latest available data from 2018 on demonstrated peak capacity from the EIA was 4,263 Bcf.
If repeated this coming season there is an increased risk of further downside risks to global prices with the oversupply situation potentially worsening due to slowing demand growth in China.
Downside risks:
Upside risks:
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
