Prices Push Higher on Gas Withdrawal Above Expectation

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Natural gas storage inventories decreased 107 Bcf for the week ending December 13, according to the EIA’s weekly report. This was above the market expectation, which was a draw of 102 Bcf.

Working gas storage inventories now sit at 3.411 Tcf, which is 618 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 $2.253/MMBtu, roughly $0.033 below yesterday’s close. After the release of the report, the January 2020 contract was trading at $2.290/MMBtu.

Prices opened the week at $2.341, ~$0.045/MMBtu higher than the close on Friday; however, the price gain couldn’t hold throughout the week and has fallen below the Friday close. Current weather forecasts show well above-average temperatures for the remainder of the year, not giving much hope of a price rally. However, prompt month contracts historically rally during expiration week, so a rally could occur for the January contract as expiration nears. Apart from expiration, changes to the weather forecast will continue to be the main driver of price volatility.

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

Prices Push Higher on Gas Withdrawal Above Expectation

This Week in Fundamentals

The summary below is based on Bloomberg’s flow data and DI analysis for the week ending December 19.

SUPPLY:

  • Dry production decreased 0.97 Bcf/d on the week. Most of the decrease came from the South Central Region (−0.52 Bcf/d), where Texas and Louisiana decreased 0.28 Bcf/d and 0.31 Bcf/d, respectively. The East and Mountain Regions accounted for the remainder of the decrease, falling 0.24 Bcf/d each.
  • Canadian net imports increased 0.58 Bcf/d. Exports to Canada fell from the Midwest, while imports increased from Canada in the Midwest and the Northeast.

DEMAND:

  • Domestic natural gas demand increased 6.49 Bcf/d week over week. Res/Com demand accounted for a majority of the increase, gaining 5.30 Bcf/d on the week. Power and Industrial demand also increased, gaining 0.56 Bcf/d and 0.62 Bcf/d, respectively.
  • LNG exports decreased 0.02 Bcf/d, while Mexican exports decreased 0.11 Bcf/d week over week.

Total supply decreased 0.39 Bcf/d, while total demand increased 6.53 Bcf/d week over week. With an increase in demand and the decrease in supply, expect the EIA to report a stronger draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 148 Bcf. Last year, the same week saw a draw of 48 Bcf; the five-year average is a draw of 96 Bcf.

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