Prices Rise with Draw Larger Than Expected

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byEnverus

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Natural gas storage inventories decreased 137 Bcf for the week ending January 31, according to the EIA’s weekly report. This was more than the expected draw of 131 Bcf.

Working gas storage inventories now sit at 2.609 Tcf, which is 615 Bcf above inventories from the same time last year and 199 Bcf above the five-year average.

Prior to the storage report release, the March 2020 contract was trading at $1.843/MMBtu, roughly $0.018 below yesterday’s close.  After the release of the report, the March 2020 contract was trading at $1.864/MMBtu.

Prices gained some traction earlier this week as weather forecasts shifted colder, jumping from Monday’s close at $1.819 to $1.872 at Tuesday’s close.  Prices have continued to trade near that level since Tuesday’s close.  Current weather forecasts from NOAA’s Climate Prediction Center show the 6-to-10-day forecast with below-average temperatures from the North Midcon south to New Mexico and the West Coast; above-average temperatures are expected from south Texas all the way up the East Coast.  The 8-to-14-day forecast shows a similar pattern, but with the below-average temperatures shifting farther east into the Midwest.

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 6.

Supply: 

  • Dry production decreased 0.60 Bcf/d on the week.  Most of the decrease came from the Mountain region (-0.38 Bcf/d), the East (-0.13 Bcf/d), and the South Central (-0.10 Bcf/d).  The Midwest and the Pacific both saw relatively small increases.
  • Canadian net imports decreased 0.10 Bcf/d.

Demand:

  • Domestic natural gas demand decreased 3.00 Bcf/d week over week.  Res/Com demand accounted for the majority of the decrease, falling 2.71 Bcf/d on the week.  Industrial demand also decreased, falling 0.38 Bcf/d, while Power demand saw an increase, rising 0.09 Bcf/d, respectively.
  • LNG exports increased 0.09 Bcf/d.  Mexican exports decreased 0.62 Bcf/d.

Total supply decreased by 0.69 Bcf/d, while total demand decreased 3.69 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 102 Bcf.  Last year, the same week saw a draw of 78 Bcf; the five-year average is a draw of 132 Bcf.

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