Will the injection season in natural gas ever arrive – velocityshares 3x long natural gas etn (nysearca ugaz) seeking alpha gas exchange in the lungs is facilitated by


On Thursday, April 26, the Energy Information Administration reported that stockpiles of natural gas dropped by a total of 18 billion cubic feet for the week ending on April 20, 2018. 17 of the 18 bcf decline came from the Midwest region of the United States where a continuation of late winter conditions kept the demand for heating high. Total stocks stand at 1.281 trillion cubic feet which are 41.2% below last year’s level and 29.1% below the five-year average for this time of the year. Stockpiles of natural gas are going into the injection season, if it ever arrives, at a very low level in 2018.

The price of the new active month NYMEX June natural gas futures contract posted a marginal gain after the release of the latest inventory data. Over past weeks, stocks have continued to decline even winter turned to spring, but the price action in the energy commodity has been remarkably tame given such bullish stockpile data. We went into the winter season last November with the lowest level of stocks in three years, and we are emerging with the same. However, other than a brief rally to $3.661 per MMBtu in late January, the price has not done much on the upside during the season of peak demand. The withdrawal season started early and is ending very late this year

The withdrawal season of 2017/2018 began early during the week of November 10, one week earlier than over recent years. Natural gas went into the peak season of demand with a total of 3.79 trillion cubic feet of the energy commodity in storage. Stockpiles dropped steadily throughout the winter, but price action has not reflected the inventory data.

As the weekly chart highlights, the price action in natural gas was tame this winter, with only one significant move to the upside in late January. However, natural gas only made it to a high of just over $3.66 per MMBtu which was a lower high compared to the peak price going into the peak season the previous year when the energy commodity moved to $3.994 per MMBtu. The price action was likely a reflection of the perception that massive reserves of natural gas in the Marcellus and Utica shale regions of the U.S. will quickly build inventories once the injection season gets underway.

May begins on Tuesday, and we have yet to see the first net injection into natural gas storage. Last year, the bottom in stocks occurred during the week of March 24 at 2.049 tcf. In 2016 the bottom came on March 25 at 2.468 tcf, and in 2015, the lows were at 1.461 tcf as of March 27. Even in 2014, when stockpiles of the energy commodity declined to the very low level of only 824 bcf, the low came during the week of March 28. Going back to 2010, we have not witnessed natural gas withdrawals from inventory later than the week of April 5. The latest report from the EIA last week reported a decline in stocks as of the end of the week of April 20.

There are three reasons for the late withdrawals this year. First, it remained cold throughout the Northeastern and Midwestern United States until last week this year, keeping the demand for heating high. This year April showers were April snowstorms in many parts of the country. Second, the shift from coal-powered electricity generation to natural gas has increased demand which likely increased demand marginally over recent weeks. Finally, shipments of LNG continue to rise which is another source of offtake for the natural gas market. The bottom line is that we will not see the EIA report the first injection into inventories this year until the first or second week of May.

We entered the withdrawal season with the lowest level of inventories in three years at 3.79 tcf last November, and we are exiting the peak demand time with the lowest stockpiles since the last week of March 2014. If we get an injection from the EIA next week, the bottom this year will be at 1.281 tcf. That level is only 457 bcf above the 2014 low which was a year when cold weather and low stocks drove the price of nearby NYMEX natural gas futures to highs of $6.493 per MMBtu in February, a level that was $2.832 higher than this year’s peak in late January. And, the difference between the two prices is higher than the price of the energy commodity on the nearby futures contract on Friday, April 27. June natural gas futures were trading at $2.78 at the end of last week. A weak attempt at a rally

In late January when the nearby futures contract climbed to the highs of the year at $3.661 per MMBtu, the now active month June contract only made it up to the $2.975 level. The discount at the time was because of the market’s perception that by the time June became the active month the energy commodity would be flowing into storage and the withdrawal season would have faded into the market’s rearview mirror. However, as May rolled to June last week, the market continued to wait for the first increase in stockpiles this year. While supply data has been anything but bearish for the price of the energy commodity, natural gas futures have been making lower highs since late January, and the latest attempt at a rally after yet another withdrawal last week fizzled out on Friday as the price failed to follow through on the upside.

As the daily chart of June futures illustrates, the price of natural gas rallied from lows of $2.66 per MMBtu on April 11 to a high of $2.844 on April 26 as stocks continued to fall. However, the price fell back below the $2.80 level as the market ignored the low level of stocks and instead turned its attention to the future injections that will flow into storage over the coming weeks and months.

The price action in natural gas futures has been bearish since the end of January when the energy commodity found its high for the year. On the weekly chart, short-term technical support stands at $2.53 per MMBtu, the February low with resistance at $2.8390 the recent high on the expired May futures contract. While price momentum on the daily chart of June futures has risen into overbought territory and crossed to the downside, the weekly pictorial displays another potential course for the price of the energy commodity.

The price action at the end of last week tells me that the majority of market participants that trade natural gas are betting that injections will quickly fill storage facilities. However, natural gas has a long history as a very volatile commodity that often ignores market consensus and moves in a counter-intuitive direction. I believe that a price move outside of the trading range that has been in place for over two and one-half months will come sooner rather than later. I will be using the UGAZ and DGAZ triple leveraged long and short natural gas ETN vehicles for very short-term positions over coming weeks as withdrawals turn to injections. Given that natural gas has not rallied as stockpiles steadily declined, we may see the price move to the upside when they begin to increase over coming weeks. The injection season will arrive in the natural gas market either this week or next, but that does not mean the price will necessarily respond by moving lower. My bet is that the news of the first injection could be a sell the rumor and buy the news event in the futures market for the energy commodity that can be volatile and irrational at times.