Natural gas storage inventories increased 39 Bcf for the week ending November 9, according to the EIA’s weekly report. This week’s injection is slightly above market expectations, which were 36 Bcf. Sticking with the trend over the past couple of weeks, this week’s build comes from the Midwest and the South Central, which accounted for 36 Bcf of the 39 Bcf injection.
At the time of writing, the December 2018 contract was trading at $4.140/MMBtu, ~$0.697/MMBtu below the December 2018 close of $4.837 yesterday.
Working gas storage inventories now sit at 3.247 Tcf, which is 528 Bcf below last year and 601 Bcf below the five-year average.
The December 2018 contract has traded in a wide range in November, from $3.237/MMBtu to $4.837/MMBtu. Prices soared again this week, with the December 2018 contract closing at the November high of $4.837/MMBtu yesterday; the December ‘18 contract has a closing average $4.24/MMBtu so far this week. The price volatility for December can be explained somewhat by the fundamentals—weather, storage levels, production, and demand—but there is also some thought that the financial markets are playing a role that caused the December contract to reach the highs yesterday. The thought is that hedge funds were long crude and short natural gas for the winter, which have historically been profitable. However, with gas trending up and crude trending down, these hedge funds were forced to unwind their positions to avoid any further loss.
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 November 15, 2018.
- Dry gas production decreased 0.40 Bcf/d on the week. Production decreases in the Mountain Region (-0.30 Bcf/d) and the South Central Region (-0.18 Bcf/d) are the main contributors to the drop in production. Within the Mountain Region, a majority of the movement came from New Mexico (-0.24 Bcf/d). Texas (-0.37 Bcf/d), Louisiana (+0.12 Bcf/d), and the GoM (+0.11 Bcf/d) are the main drivers of the South Central Region change.
- Canadian imports increased 0.72 Bcf/d for the week. Roughly 0.41 Bcf/d of the Canadian import increase comes from additional receipts on Iroquois flowing into New York.
- Domestic natural gas demand increased 21.63 Bcf/d week over week. The cold weather caused heating demand to increase, causing Res/Com to increase 16.44 Bcf/d. Power and industrial demand also increased 3.74 Bcf/d and 1.46 Bcf/d, respectively.
- LNG exports increased 0.45 Bcf/d week over week, while Mexican exports decreased by 0.17 Bcf/d.
Total supply is up 0.32 Bcf/d, and total demand is up 22.53 Bcf/d week over week. With the increase in demand outpacing the increase in supply, the EIA is expected to report the first draw of the season. The ICE Financial Weekly Index report is currently expecting a draw of 118 Bcf for next week. Last year for the same week was a draw of 46 Bcf, while the five-year average is a draw of 49 Bcf.
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