The U.S. natural gas market’s supply-demand balance in 2018 has been razor thin, with demand ramping up to match strong production gains. The result has been a large and stubborn storage deficit compared to prior years and price volatility, the likes of which the market hasn’t seen in a decade or more. How will the current storage level affect the winter gas market, and what are the prospects for storage to catch up before the winter is up? Today’s blog considers potential scenarios for the season-ending gas inventory balance.
In Part 1 of this series, we looked at the recent price volatility in the natural gas market and the fundamentals behind it. After treading near $3/MMBtu nearly all year and daily settlements moving within just 10 cents day-to-day, the CME/NYMEX Henry Hub prompt natural gas futures contract last month began exhibiting wild volatility — the kind not seen in a decade or more. The December prompt contract settled in a wide range, starting the month near $3.20/MMBtu, catapulting up to $4.84/MMBtu and moving in 20 to 80-cent increments on many days. That volatility has continued into this month with the January prompt contract.
The cause of this newfound volatility is the market’s hypersensitivity to even the tiniest shifts in the weather outlook. That super sensitivity, in turn, stems from a combination of a tight supply-demand balance this year and a massive deficit in the storage inventory relative to recent years. As we demonstrated in the previous episode, total supply on average this year has trended nearly flat with total demand (not including storage), which implies the tightest supply-demand balance going back at least to 2010. That’s saying a lot, considering production has surged 8 Bcf/d year-on-year and continues to set records regularly. But gas demand has mounted a strong rally of its own this year and closed the gap with supply, and that’s depleted the storage inventory relative to prior years.
The Canadian NATGAS Billboard is a weekly, early morning email and report that’s designed to keep physical and financial participants informed of the various fundamental components that make up the complex Canadian natural gas market. This service saves readers time and confusion by compiling all the most critical data points into one clear and concise report.
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About the song
"The Razors Edge" is the fourth track on AC/DC's 11th internationally released studio album of the same title. It was written by band members and brothers Angus and Malcolm Young. Released in September 1990, the album reached #2 on the U.S. Billboard 200 chart and has been certified 5x Platinum by the R.I.A.A. The song, "The Razors Edge," also appears on the 2010 Iron Man 2 album. It is the 12th track on a soundtrack that serves as a retrospective of AC/DC's catalog to that point in time.
AC/DC is an Australian rock and roll band that was founded in Sydney in 1973 by brothers Malcolm and Angus Young. The band defines themselves as "a rock & roll band, nothing more, and nothing less." They have released 16 studio albums and one live album. AC/DC has won one Grammy Award in 2008 for Best Hard Rock Performance — for "War Machine" from the Black Ice album. After the death of Malcolm Young, and the departures of lead singer Brian Johnson and bassist Cliff Williams, the future of the band is undecided.
