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Mild Weather Ahead Pushes January Contract to Record Low Levels


Natural gas storage inventories decreased by 182 Bcf for the week ended Dec. 15, per EIA. The report was bearish as prices opened higher, but are now down $0.01 MMBtu following the EIA release. The Jan2018 futures contract is trading at $2.633 per MMBtu, at time of writing.

December weather has come in around normal levels on average, but market participants are now looking at a potential mild January. In addition to lower demand due to mild temperatures, the supply gains the market has seen over the past couple of months has put significant downward pressure on prices. Total dry gas production has increased over 2 Bcf/d, which combined with a weak demand winter is leading the January contract to trade at historical lows. January 2018 will become the second time over the past 10-years to settle below $3.00/MMBtu.

Working gas storage inventories dropped to 3.444 Tcf, level 183 Bcf below last year and 84 Bcf below the 5-year average.

See chart below for projections of 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 PointLogic’s flow data and DI analysis for the week ending 12/21.

• Supply: dry gas production is up 420 MMcf/d this week led by gains in Texas and Gulf of Mexico. These regions are now back to levels seen about 2-3 weeks ago when freeze offs impacted the Gulf. Canadian imports are down 280 MMcf/d.

• Demand: as temperatures moderated this week, demand for natural gas decreased week-on-week across all sectors. Res/com is down 7.7 Bcf/d, power dropped by 2.3 Bcf/d. LNG exports are also down 200 MMcf/d, while Mexican exports were basically flat, up 20 MMcf/d.

• Total supply is up 0.08 Bcf/d to 82.8 Bcf/d while total demand is down 12.1 Bcf/d to 95.6 Bcf/d. The natural gas market remains short this week implying withdrawals will continue in next week’s EIA storage report. However, the storage withdrawal will be significantly smaller than this week and expected to return to a two-digit draw.

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