Gas Draw Above Market Expectation, Prices Rise

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Natural gas storage inventories decreased 19 Bcf for the week ending November 29, according to the EIA’s weekly report. This was higher than the market expectation, which was a draw of 14 Bcf.

Working gas storage inventories now sit at 3.591 Tcf, which is 591 Bcf above inventories from the same time last year and 9 Bcf below the five-year average.

Prior to the storage report release, the January 2020 contract was trading at $2.420/MMBtu, roughly $0.022 higher than yesterday’s close. At the time of writing, after the release of the report, the January 2020 contract was trading at $2.458/MMBtu.

Before the holiday last week, prices were trading around $2.50 and above. However, last Friday, prices saw a decline of ~$0.22 from the close on Wednesday, falling to $2.281. This week, gains have been made on weather forecasts turning colder in the 5-to-10-day period. However, even as temperatures are expected to turn colder, the January contract is still trading sub-$2.50 as of yesterday’s close, closing at $2.408. For prices to garner strength going forward, weather forecasts will need to show extended periods of cold, as the market is currently sitting comfortably on storage inventories and increased production.

See the chart below for projections of the end-of-season storage inventories as of April 1, 2020, the end of the withdrawal season.

Gas Draw Above Market Expectation, Prices Rise

This Week in Fundamentals

The summary below is based on Bloomberg’s flow data and DI analysis for the week ending December 5, 2019.

Supply:

  • Dry production decreased 0.14 Bcf/d on the week. Most of the decrease came from the Mountain region (-0.50 Bcf/d) and the East (-0.05 Bcf/d), with an offset from the South Central (+0.38 Bcf/d) and small gains in the Pacific and East.
  • Canadian net imports increased 0.46 Bcf/d mainly due to increased flows into the Northeast.

Demand:

  • Domestic natural gas demand increased 7.64 Bcf/d week over week. Res/Com demand increased 5.55 Bcf/d, while Power and Industrial demand increased 1.66 Bcf/d and 0.43 Bcf/d, respectively.
  • LNG exports remained relatively flat, while ek. 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 78 Bcf. Last year, the same week saw a draw of 77 Bcf; the five-year average is a draw of 78 Bcf.

Total supply increased 0.32 Bcf/d, while total demand increased 7.95 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 78 Bcf. Last year, the same week saw a draw of 77 Bcf; the five-year average is a draw of 78 Bcf.

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