GAZB - Natural Gas Prices Continue To Defy Gravity As South Central Reports Draw
- EIA reported a bullish storage report today of +55 Bcf. The key data in this report was the 4 Bcf draw in South Central.
- A draw in South Central highlights a tight market, and the price reaction is telling.
- But while prices continue to rise, the relationship between natural gas and overall storage is also important to keep track of. And given where overall storage is, prices are overvalued.
- In our view, if the weather outlook is neutral to slightly warmer than normal, we think the price range is $3 to $3.35. Hotter than normal could push this upwards of $3.6/MMBtu, but that's the top as additional gas-to-coal power burn switching takes place. This would naturally force demand down and create a cap for gas prices.
- We are currently short a small position in natural gas via a long position in KOLD. If prices continue to rise, however, we will be looking at a larger short position.
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Natural Gas Prices Continue To Defy Gravity As South Central Reports Draw