The EIA announced a 152 Bcf withdrawal for the week ended February 3. The draw included a 5 Bcf reclassification in the Pacific region implying a flow storage draw of 147 Bcf. Market expectations average 153 Bcf with the full range of forecasts ahead of the release -124 to -172 therefore the storage report is considered bearish since most market participants project the implied flow draw (no reclassifications). Natural gas prices opened about 4 cents higher than yesterday ahead of the report, but are down following the bearish storage withdrawal 2-3 cents. The March 2017 prompt contract is currently up only $0.02 to $3.148 per MMBtu at time of writing.
Working gas storage inventories fell to 2.559 Tcf and remain below last year and 5-year high levels by 325 Bcf, however inventories continue above the 5-year average this week, up 45 Bcf.
See Drillinginfo EIA’s below and note the addition of projected end-of-season storage inventories based on withdrawals at the 5-year average rate and weak withdrawals similar to the ones seen during Winter 2015-16. Both scenarios are bullish for natural gas prices at 2.1 and 1.8 Tcf for inventories at the end of March compared to the 5-year average of 2.5 Tcf.
In the short-term, weather continues to be the big mover of natural gas prices over the next 1-15 days. January temperatures were very mild, but February weather has been closer to normal. While demand will continue to fluctuate with weather, the supply picture is considerably more concerning. Dry gas production levels remain below 71 Bcf/d, almost 3 Bcf/d lower than last year, but also lower than 2015 levels. Back to the demand side, in addition to a strong power demand outlook for the summer as gas has moved up in the generation stack, LNG and MX exports continue to hit record highs every week. MX exports are already north of 4 Bcf, while LNG exports reached 2 Bcf/d this week. Drillinginfo continues to call for a rise in prices to incentivize additional investment in gas-directed drilling, however prices will likely trade lower in the short term due to lack of consistent cold weather.
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