Natural gas storage inventories decreased 81 Bcf for the week ending January 11, according to the EIA’s weekly report. This draw is slightly below market expectation, which was 84 Bcf. The largest draws of the week came from the Midwest and the East, which accounted for 34 Bcf and 31 Bcf, respectively.
Working gas storage inventories now sit at 2.533 Tcf, which is 77 Bcf below last year and 327 Bcf below the five-year average.
At the time of this writing, the February 2019 contract was trading ~$0.038 higher than yesterday’s close of $3.384/MMBtu. Prices were up nearly $0.15/MMBtu this morning before the release but could not hold and fell after the EIA release.
Temperature forecasts over the next two to three weeks have turned colder, causing a bullish sentiment in the market. For the first ten days of the new year, the prompt month contract was trading below $3/MMBtu. However, with the forecast showing a prolonged cold shot, prices have moved back into the $3.40/MMBtu to $3.50/MMBtu range.
Mild weather and production growth (up year-over-year ~8 Bcf/d) has made it possible for storage levels to close the gap on last year’s level and the five-year average. Despite these bearish factors, the market remains uncomfortable with where the storage level sits given the current forecast. Going forward, expect volatility to remain, and price movement to be reflective of changes in the weather forecasts.
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 January 17, 2019.
- Dry gas production increased 0.63 Bcf/d on the week. The increase comes from the South Central/Gulf region (+0.36 Bcf/d) and the Mountain region (+0.36 Bcf/d), both rebounding off lower production the past couple of weeks.
- Canadian imports were relatively flat week-over-week.
- Domestic natural gas demand increased 12.00 Bcf/d week-over-week. Cold temperatures had Res/Com demand up 9.23 Bcf/d on the week. Power and Industrial demand also increased, adding 2.02 Bcf/d and 0.76 Bcf/d, respectively.
- LNG exports decreased 0.28 Bcf/d, while Mexican exports were down 0.01 Bcf/d week-over-week.
Total supply is up 0.63 Bcf/d and total demand increased 12.04 Bcf/d week-over-week. With the increase in demand over supply, expect the EIA to report a stronger draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 155 Bcf for next week. Last year, the same week was a draw of 288 Bcf, while the five-year average is a draw of 163 Bcf.