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The EIA announced a 30 Bcf injection for the week ended Nov. 4, which was in line with average market expectations. The full range of forecasts ahead of the release was +24 to 43. The storage report is bearish as prices continue its downward trend. Prompt month (Dec16) is currently trading down 8 cents at $2.685/MMBtu, as of this of writing. The Dec contract has lost almost $1/MMBtu in the last 3 weeks as mild temperatures continue to be in the forecast.
U.S. storage inventories have reached nearly 4.05 Tcf, about 50 Bcf higher than this time last year, and are expected to post another increase next week (although smaller). The first withdrawal of the season is currently expected for the week of November 25.
Weak weather continues to drive price volatility. Today’s NOAA forecast indicates warmer-than-normal temperatures are expected for December across California, the Southwest, and the Northeast, but normal temps in the remainder of the country. The three month outlook points to warmer-than-normal temperatures across the whole southern half of the US, but normal temps in northern half.
It’s still early to give up on winter demand, consider that even a mild winter doesn’t mean overall lower demand as LNG and Mexican exports are running at peak levels. On the supply side, dry gas production and Canadian imports have responded to the lower demand levels seen so far.
- Supply: Dry Gas is up 1 Bcf/d in Nov TD from Oct levels. The increases are due to higher demand at times in the Northeast, expansions coming online (DTI Clarington Nov1, Gulf Markets Oct) and a rebound from October from price driven shut-ins. Most of the 1 Bcf/d gains are in PA, specifically Transco and TETCO. TGP and DTI also posted smaller gains. Northeast basis has recovered; DTI South, TGP Z4 Marcellus and Leidy are at -70 cents in Nov compared to -$2.00 is Oct.
- Demand: Res/Com was 3 Bcf/d lower in Oct (2016 vs 2015). Nov TD is 3.7 Bcf/d lower. The trend looks like some cold is coming, but not too clear yet.
- LNG exports (Sabine) have been strong averaging nearly 1.6 Bcf/d over the past week.
Looking ahead, storage inventories are projected to end the winter season near 2 Tcf, this level is higher than the 5-year average, but lower than the 5-year max therefore, prices are projected to increase from current levels seen in the forward curve. In the meantime, prices will continue to trade on weather projections.
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