natural gas

SHRINKING OPEN INTEREST/VOLUME AMIDST THE CURRENT LACK OF DIRECTION IN NATURAL GAS

• By Ibrahim Patel
• Jul 05, 2022
• 0

*Open interest dropped by just 303 contracts Volume followed suit by around 210.7K contracts

*Now that the Europeans have finally realized that the United States can’t bail them out


Global natural gas consumption is expected to contract slightly in 2022 and grow slowly over the following three years as Russia’s war in Ukraine pushes up prices and fuels fears of further supply disruptions, according to the IEA’s latest Gas Market Report. Today’s record high gas prices at $ 5.75 per MBTU are depressing demand and causing some gas users to switch to coal and oil, while recent sharp cuts in Russian gas flows to Europe are raising alarms about supplies ahead of the winter.

Natural gas jumped due to a technical bounce and forecasts for hotter weather in US and higher demand over the next two weeks than previously expected. Shrinking open interest and volume amidst the current lack of direction in the commodity could be the prologue to some consolidative phase around current levels.

CME Group’s flash data for natural gas futures markets noted open interest dropped for the second session in a row on Friday, this time by just 303 contracts. Volume followed suit and remained choppy after retreating by around 210.7K contracts.

Freeport, the second-biggest US LNG export plant, was producing about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. So long as the plant remains shut, that gas will remain in the United States and allow utilities to boost the country's low stockpiles ahead of next winter. With hotter weather coming, Refinitiv projected average US gas demand including exports would rise from 94.3 bcfd this week to 96.6 bcfd next.

For the first time, the US is supplying more natural gas to Europe than Russia sends by pipelines, according to the International Energy Agency. Russia's recent steep cuts in natural gas flows to the EU mean this is the first month in history in which the EU has imported more gas via LNG from the U.S. than via pipeline from Russia.

After Russia's war on Ukraine, the EU in March agreed on an additional 15 billion cubic meters of U.S. LNG this year in a bid to displace Russian gas. In an ambitious target, the bloc has sought to replace a third of Russian gas with LNG from various sources this year. Dutch and British wholesale gas prices continued to firm on Monday morning amid concerns about pipeline supplies from Russia and Norway as well as liquefied natural gas (LNG) shipments.

Now that the Europeans have finally realized that the United States can’t bail them out, they have switched to coal. My suspicion is that eventually they will switch to Russian gas, but in the meantime, they will try to fight the idea. It takes the massive push in this market to the upside out of the equation.

The government-owned oil and gas explorer and producer BPCL is commissioning a 26-kilometer-long natural gas pipeline starting from the tap-off point IP-02 station on Dabhol - Bangalore pipeline, which connects South India to the national gas grid, with City Gate Station at Mouje Vadgaon village in Kolhapur District.

(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 5-7-2022