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Prices Rise as Gas Storage Draw Exceeds Expectations

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Natural gas storage inventories decreased 151 Bcf for the week ending February 14, according to the EIA’s weekly report. This was more than the expected draw of 143 Bcf.

Working gas storage inventories now sit at 2.343 Tcf, which is 613 Bcf above inventories from the same time last year and 200 Bcf above the five-year average.

Prior to the storage report release, the March 2020 contract was trading at $1.934/MMBtu, roughly $0.021 below yesterday’s close. After the release of the report, the March 2020 contract was trading at $2.019/MMBtu.

Prices gained traction over the weekend, as weather forecasts turned colder, jumping ~$0.144/MMBtu from the close on Friday to the close on Tuesday. The six-to-10-day forecast, according to NOAA’s Climate Prediction Center, shows below-average temperatures throughout the US, with the only above-average temperatures being on the Northeast coast and the West Coast. Looking a little further out, in the eight-to-14-day forecast, below-average temperatures are expected from the Rockies to the East Coast, while the West Coast remains above average. While forecasts have previously shown below-average temperatures, this forecast change shows below-average temperatures hitting high-demand areas, driving the price increase.

A late winter rally could be in the books if this cold extends into March. With production expected to remain relatively flat in 2020 and additional LNG demand expected online this year, an extended cold shot into March could significantly help the summer 2020 outlook. As of the close yesterday, the summer 2020 strip was trading at ~$2.09/MMBtu.

See the chart below for projections of the 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 Bloomberg’s flow data and DI analysis for the week ending February 20.

Supply:

  • Dry production decreased 0.39 Bcf/d on the week. Most of the decrease came from the East (-0.20 Bcf/d) and the South Central (-0.19 Bcf/d), with relatively small decreases coming from the Pacific (-0.03 Bcf/d) and from the Midwest. The Mountain region saw a small increase (+0.04 Bcf/d).
  • Canadian net imports increased 0.23 Bcf/d.

Demand:

  • Domestic natural gas demand increased 1.43 Bcf/d week over week. Res/Com demand accounted for the majority of the increase, rising 2.04 Bcf/d on the week. Industrial demand also increased, rising 0.11 Bcf/d, while power demand decreased 0.71 Bcf/d.
  • LNG exports decreased 0.15 Bcf/d. Mexican exports increased 0.13 Bcf/d.

Total supply decreased by 0.16 Bcf/d, while total demand increased 1.43 Bcf/d week over week. With the 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 152 Bcf. Last year, the same week saw a draw of 166 Bcf; the five-year average is a draw of 103 Bcf.

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