Highlights of the Natural Gas Summary and Outlook for January 9, 2015 follow. The full report is available at the link below.
Natural Gas Summary and Outlook
- Price Action: The February contract fell 5.7 cents (1.9%) to $2.946 on a 36.5 cent range.
- Price Outlook: The market recorded a rare inside week with the low of $2.811 6 ticks above last week’s $2.805. This ends the consecutive streak lower at 6 weeks, the 11th occurrence since 2000. While there is some evidence the supply/demand is tightening, that is largely due to the cold weather and unless cold weather remains in place, prices are expected to trend lower still until the yearly storage surplus is no longer expanding. However, the market remains technically oversold, although not to the same extent it was, and a short covering rally is always possible. The CFTC data indicated a small decline in the managed money net long speculative position to the lowest level since March 2012 and now just barely net long. Total open interest as of January 6 stood at 3.81 million contracts with a still sizable option related position. CME futures aggregated open interest rose to 969,000 as of January 8.
- Weekly Storage: US working gas storage for the week ending January 2 indicated a draw of 131 bcf. Thus total working gas inventories fell to 3,089 bcf. Current inventories rise 272 bcf (9.7%) above last year while still trailing the 5 year average by 75 bcf (2.7%).
- Storage Outlook: Despite the recent cold and estimations for withdrawals near 200 bcf, the yearly surplus is still projected to expand in coming weeks as large withdrawals occurred last year. The comparison to the 5 year average will have more variance as the cold weather will result in withdrawals exceeding the 5 year average. Still, it is easy to envision a yearly surplus over 900 bcf by the end of March. This is still very dependent on actual temperatures.
- Supply Trends: Total supply fell 0.4 bcf/d to 76.8 bcf/d. US production and Mexican exports were lower. Canadian imports were higher while LNG imports were unchanged. The US Baker Hughes rig count fell 61 as oil activity slipped while natural gas was barely higher. The total US rig count now stands at 1,750. The Canadian rig count rose 158 to 366. Thus, the total North American rig count rose 97 to 2,116 and now trails last year by 115. The higher efficiency US horizontal rig count fell 35 to 1,301 and rises 143 above last year. As the rig count continues to fall, estimates of required activity to maintain current production levels are important benchmarks. Currently, we estimate 60 Marcellus rigs are required to maintain output. This will be updated monthly and obviously remains dependent on decline rates and rig efficiencies. This is not a static number. A small E&P company filed for bankruptcy this week, unable to meet operating expenses due to a partner. This is likely the first in many to come if prices remain at these levels.
- Demand Trends: Total demand rose 15.2 bcf/d to 93.6 bcf/d. All sectors were higher with R&C leading the way. Electricity demand rose 5,448 gigawatt-hrs to 77,346, which trails last year by 1,650 (2.13%) and the 5 year average by 289 (0.4%).
- Other Factors: The S&P 500 was lower on the week, despite a positive jobs headline.
- Our proprietary heating index continues to remain in 3rd place with a forecast through January 23. The total index stands at 1,558 compared to 1,782 for 2013/14, 1,531 for 2012/13, 1,522 for 2011/12 and 1,733 for 2010/11.
