A Self-Defeating Natural Gas Rally In The Making (Part 2)

Editor's note: Following feedback from HFI Research's main subscribers about the new service, "Ideas from HFI Research." I have decided to delay the transition date from June 1 to July 1. All idea write-ups will continue to be posted on HFI Research main service throughout June.

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Last week, we wrote our NGF piece titled, "A Self-Defeating Natural Gas Rally In The Making." In the report, we pointed out that the tight natural gas market we are seeing today is primarily the result of voluntary production curtailment from natural gas producers due to abysmal near-term natural gas prices. So as the market starts to push prices higher, the rally is self-defeating in nature as it will prompt natural gas producers to push production higher.

Following the report, July contracts have dropped from $2.931/MMBtu down to $2.656. And while the drop is meaningful, the price is still sufficient enough to bring back more production by July.

Looking at the latest Lower 48 gas production reading, we expected an increase over ~100 Bcf/d into the end of May, and with production tracking along our expectation, we expect to see production reach ~102.5 to ~103 Bcf/d by July.

Misunderstanding...

We think there is a material misunderstanding in the market regarding natural gas producer production.