Happy Storage Day
The EIA reported that for the week ending February 28th, -80 Bcf was withdrawn from storage in the lower 48 states. The consensus estimate of -96 Bcf, so call this one a miss.
The market sold off initially, but drifted back up to where was before the announcement. This volume is a big change from the huge withdrawals over the previous few weeks, so why didn’t the NYMEX front month sell off?
In The Desk, a weekly natural gas journal, the author asks the question: Why has Natural gas been up this week? Was it a weather shift? No. A surge in Demand? No. LNG changes? No. Middle East turmoil? No. Production cuts? No. So what else? They conclude that all this volatility comes from Trump’s trade wars (the plural here intentional). The people in charge don’t seem to know what is going to happen tomorrow, or even this afternoon, and the market is scared.
Consequently, volatility will increase beyond the normal March/April swings, but uncertainty is bad for business. Would your business want to break ground on a new factory if they didn’t know if the free trade area will exist next year? Our concern is that energy companies may not make the investment in new production because of this uncertainty.
Remember the market’s guard rails which keeps the price for natural gas range-bound (obviously barring any other significant fundamental change, like the war outbreak in Ukraine). If the price gets too low, production is cut. If the price gets too high, production is increased. These changes in production drive the price back within the range. However, in this new uncertain environment, they might not respond to higher prices with an increase production, and we will have to tolerate even higher prices. Just a possibility to consider. Therefore, at least for the short-term, market fundamentals won’t matter as much… but these fundamentals will be the final determinant of price. The only question is when.
In terms of President Trump, it is well known that he follows the American equity market (S&P 500 Index) as a gauge of his success. The American stock markets are not liking this tariff war and has dropped over 7% since mid February highs. We are now trading back at the same levels as when he was re-elected. The feeling is that if the stock market continues to sell off, as it did today, then it is more likely that Trump will reverse these tariffs on Canada and Mexico.
Finally, let’s call to attention an excellent article on CBC News website “Elbows up’ rallying cry evokes memories of Mr. Hockey. Gordie Howe’s signature move inspires defiant slogan amid U.S. threats.”
“Facing punishing tariffs on Canadian exports and repeated jibes from U.S. President Donald Trump about their country becoming the 51st state, Canadians were understandably riled. “Elbows up” became the rallying cry they’d been looking for.
