The Heller Angle – May 19, 2020

We didn’t quite make it to 2.04 line this morning in July NGN20, so I continue to monitor.

On the EIA DPR report, there wasn’t any huge insights by me why the declines are modeled lower with less drilling. I think that a change in total production is the main cause as can be seen in the screenshots below. April DPR report models show May production at 83.16Bcf; May report models show May production at 82.25Bcf.

April 2020 Drilling Productivity Report for April by EIA.gov
May 2020 Drilling Productivity Report by EIA.gov

Remember that this is from 7 regions so total production is higher. I still think my argument of 1Bcf declines per month going forward is valid but even if we are more conservative at 0.5Bcf, supply is going to become a serious problem later in the year. Prices will need to go higher to reduce demand as supply keeps falling. The market is pricing this in on the strip and with oversupply from a warm winter this seems enough to balance the market for now. The market is relatively smart and knows this information, but what we don’t know is if the price increase is enough. I’m of the opinion no, because the strip and prices in 2021 and especially 2022 need to move higher. We will talk about the implications of this and the way to play it (NG producers vs futures / future options in future posts).

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