Natural Gas Rockets Higher And It Should Continue To Do So

Here we go again. Every week, every natural gas report, and they all sound the same: natural gas fundamentals are tight.

But there's a reason why we keep saying the same thing over and over again because, unlike the old HFIR where we talked about the weather and small details, we've learned to appreciate the mega trend. And in the case of natural gas, we have one fundamental problem the market won't be able to resolve anytime soon: not enough production.

Two words: not enough.

And that really sums up the reality of the natural gas market today. With power burn demand now picking up steam, natural gas prices will keep grinding higher. Like we've said many times before, it's a one-way bet, so there will be a lot of unnecessary volatility from here to the destination to shake out the over-leveraged traders. But the path is set, so unless production spikes to ~98 Bcf/d to ruin the party, it's going to be hard to stop this freight train.

And then if you look at total gas demand, the strength is just remarkable. On a y-o-y basis, we are now +9 Bcf/d for total gas demand. For supplies, we are +2.4 Bcf/d. This is the reason why natural gas is moving higher and will continue to until something dramatic happens.

Based on our calculation, the market is the tightest it has ever been for this time of the year. And staying true to our broken clock nature, we are about to match the 2018 injections without the supply increase. As a result, prices will likely reach double digits.

Again, there is no demand replacement this year from the likes of gas-to-coal switching. The coal stockpile is in shortage right now, so good luck finding a replacement there.

To sum it all up, natural gas is going higher. Stay long AR, it doesn't get more complicated than that.

Disclosure: I/we have a beneficial long position in the shares of AR either through stock ownership, options, or other derivatives.