Prices Decline Despite Gas Draw Meeting Expectations

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byEnverus

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Natural gas storage inventories decreased 109 Bcf for the week ending February 28, according to the EIA’s weekly report. This was in line with the expected draw of 108 Bcf.

Working gas storage inventories now sit at 2.091 Tcf, which is 680 Bcf above inventories from the same time last year and 176 Bcf above the five-year average.

Prior to the storage report release, the April 2020 contract was trading at $1.814/MMBtu, roughly $0.013 below yesterday’s close. After the release of the report and at the time of writing, the April 2020 contract was trading at $1.798/MMBtu.

After dropping down to $1.642 Friday intraday and testing support levels from 2016, prices rebounded over the weekend, closing Monday at $1.756. Prices have continued to gain throughout the week and closed yesterday at $1.827. However, weather forecasts from NOAA’s Climate Prediction Center currently show normal to above-average temperatures throughout the lower 48, limiting heating demand.

The market remains bearish, especially as the shoulder season nears and weather becomes milder. Temperatures during this time of year are typically not hot enough to cause significant amounts of cooling demand, and not cold enough to cause heating demand, resulting in oversupplied markets. Expect prices to remain below $2/MMBtu during shoulder season.

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 Enverus analysis for the week ending March 5.

Supply:

  • Dry production decreased 0.43 Bcf/d on the week. Most of the decrease came from the South Central (-0.43 Bcf/d) and the Mountain region (-0.24 Bcf/d) with an offset coming from the East (+0.26 Bcf/d).
  • Canadian net imports decreased 0.56 Bcf/d, mainly due to decreased imports into the Midwest and Northeast.

Demand:

  • Domestic natural gas demand decreased 7.56 Bcf/d week over week. Res/Com demand accounted for the majority of the decrease, falling 5.08 Bcf/d on the week. Power demand and Industrial demand also decreased, falling 1.52 Bcf/d and 0.96 Bcf/d, respectively.
  • LNG exports decreased 0.85 Bcf/d, mainly due to Sabine Pass. Mexican exports increased 0.05 Bcf/d.

Total supply decreased 0.99 Bcf/d, while total demand decreased 8.61 Bcf/d week over week. With the decrease in demand outpacing the decrease in supply, expect the EIA to report a weaker draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 46 Bcf. Last year, the same week saw a draw of 200 Bcf; the five-year average is a draw of 78 Bcf.

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