Natural gas storage inventories decreased 141 Bcf for the week ending December 14, according to the EIA’s weekly report. This week’s draw is nearly spot on with market expectations, which were 140 Bcf. The East, Midwest, and South Central regions led the draw, accounting for 122 Bcf of the 140 Bcf. The largest draw this week was seen in the Midwest, with a draw of 44 Bcf.
Working gas storage inventories now sit at 2.773 Tcf, which is 697 Bcf below last year and 720 Bcf below the five-year average.
At the time of this writing, the January 2019 contract was trading ~$0.065 higher than yesterday’s close of $3.726/MMBtu. However, most of the price increases came before the storage release.
Weather forecasts have moderated over the past two weeks, causing the January 2019 contract to drop below $4/MMBtu on December 14. Since November 1, the January 2019 contract has had an average day-over-day price change of $0.187/MMBtu, a max change of $0.855/MMBtu, and a trading range from $3.275/MMBtu to $4.898/MMBtu.
With storage inventories at a record low, weather forecasts are the biggest driver of the price volatility. Price fluctuations are expected to continue throughout the winter as weather forecasts change. Should the forecast show normal to above-average temperatures, expect prices to decline. Should the forecast show below-average temperatures, expect sentiment to become bullish and prices to increase.
See the chart below for projections of the end-of-season storage inventories as of November 1, the end of the injection season.
This Week in Fundamentals
The summary below is based on Bloomberg’s flow data and DI analysis for the week ending December 20, 2018.
- Dry gas production decreased 0.36 Bcf/d on the week, with a bulk of the movement coming from the East region (-0.40 Bcf/d), primarily from West Virginia (-0.21 Bcf/d).
- Canadian imports decreased 0.11 Bcf/d week-over-week.
- Domestic natural gas demand decreased 13.72 Bcf/d week-over-week. Warmer temperatures week-over-week caused Res/Com demand to decrease 10.84 Bcf/d. Power and Industrial demand decreased 2.02 Bcf/d and 0.85 Bcf/d, respectively.
- LNG exports decreased 0.31 Bcf/d, while Mexican exports increased 0.08 Bcf/d week-over-week.
Total supply is down 0.47 Bcf/d, and total demand decreased 14.79 Bcf/d week-over-week. With the decrease in demand outpacing the decrease in supply, expect the EIA to report a weaker draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 50 Bcf for next week. Last year, the same week was a draw of 112 Bcf, while the five-year average is a draw of 122 Bcf.
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