Natural gas storage inventories decreased 92 Bcf for the week ending January 17, according to the EIA’s weekly report. This was slightly larger than the expected draw of 91 Bcf.
Working gas storage inventories now sit at 2.947 Tcf, which is 554 Bcf above inventories from the same time last year and 251 Bcf above the five-year average.
Prior to the storage report release, the February 2020 contract was trading at $1.967/MMBtu, roughly $0.062 above yesterday’s close. After the release of the report, the February 2020 contract was trading at $1.938/MMBtu.
February prices continue to slide and have dipped below the $2/MMBtu mark. Weather forecasts have shown cold shots in the long term (10-15 day forecast), but those cold shots haven’t materialized so far this winter. With February as prompt month, the February 2020 contract is trading at its lowest point, on average, since at least 2015, averaging ~$2.10/MMBtu during January so far, and is currently trading between $1.90 and $1.95. During the past three years, 2017-2019, the February prompt month contract has averaged $3.18/MMBtu.
As we move closer to earnings season, the market will develop a better idea of production expectations for 2020. With the 2020 summer strip averaging ~$2.10/MMBtu, it may be possible to see gas-focused E&Ps keep production flat in 2020, or possibly decrease production in favor of saving capital.
See the chart below for projections of the end-of-season storage inventories as of April 1, the end of the withdrawal season.
This Week in Fundamentals
The summary below is based on Bloomberg’s flow data and DI analysis for the week ending January 23.
Supply:
- Dry production decreased 1.26 Bcf/d on the week. Most of the decrease came from the South Central (-0.80 Bcf/d) and the East (-0.30 Bcf/d), with an additional decrease coming from the Mountain region (-0.18 Bcf/d). The Midwest and the Pacific both saw relatively small increases.
- Canadian net imports increased 1.86 Bcf/d, mainly due to increased imports into the Northeast and the Midwest.
Demand:
- Domestic natural gas demand increased 17.63 Bcf/d week over week. Res/Com demand accounted for the majority of the increase, rising 13.43 Bcf/d on the week. Power and Industrial demand also increased, rising 2.96 Bcf/d and 1.23 Bcf/d, respectively.
- LNG exports increased 0.18 Bcf/d. Mexican exports decreased 0.19 Bcf/d.
Total supply increased by 0.60 Bcf/d, while total demand increased 18.11 Bcf/d week over week. With the increase in demand outpacing the increase in supply, expect the EIA to report a stronger draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 196 Bcf. Last year, the same week saw a draw of 173 Bcf; the five-year average is a draw of 125 Bcf.
