The CME/NYMEX Henry Hub January contract settled yesterday at $3.54/MMBtu, about 30.8 cents (~10%) above where the December contract expired ($3.232) and 77.6 cents (28%) higher than where November settled ($2.764). The natural gas winter withdrawal season is officially underway—it’s a lot colder and gas demand has spiked. But this week also marks another key bullish threshold: as today’s Energy Information Administration (EIA) storage report will likely show, the U.S. natural gas inventory has fallen below the prior year’s levels for the first time in two years (since early December 2014). That’s in sharp contrast to where the inventory started the injection season in April—more than 1,000 Bcf higher compared to April 2015. Moreover, we expect the emerging deficit to grow substantially over the next several weeks. Today we look at the supply-demand fundamentals driving this shift and what it means for the winter gas market.
Our NATGAS Billboard outlook projects that EIA will report a (139)-Bcf withdrawal for last week, which would put the overall U.S. inventory at 3,814 Bcf as of December 9 (2016). That is 32 Bcf below the inventory level in the same week last year, but still 172 Bcf higher than the five-year average for the same week. This marks the first year-on-year deficit in storage since the week of December 5, 2014. By late December, we also expect the inventory to dip below the five-year average, based on the latest weather forecasts—that hasn’t happened since late-May 2015.
As we’ve noted previously here in the RBN blogosphere, the U.S. natural gas inventory—as reported by the EIA each week—is regarded as an ever-present bellwether for price direction in the natural gas market. Gas market participants and analysts train their eyes on weather forecasts—and the constant daily, or even intraday, revisions to the forecasts—along with natural gas flow data (see Sooner or Later for more on flow data analysis) and other fundamental factors to see how they might change the storage picture. Market trackers then await the weekly release of the EIA storage report (a benchmark for storage activity in the prior week) for what it says about the cumulative impact of the supply/demand balance on market economics. In the minutes and hours immediately following the EIA release each Thursday at 9:30 a.m. Central Time, the market frequently reacts to the reported withdrawal/injection volume, especially if it differs significantly from industry expectations.
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.
But in a more fundamental sense, one of the main factors influencing the market is where the inventory level stands relative to history—in other words, the surplus or deficit in storage relative to a historical period, most often last year or a recent average, such as a three- or five-year average. This is a valuable way to anchor price and price direction in the context of historical pricing and fundamentals. For example, if it’s gotten colder and demand has spiked while supply is relatively flat (as is usually the case in the winter months), more gas will be coming out of storage than going in. That seasonality is expected and generally priced into the market. But if outright storage levels are lower than previous years or withdrawals from storage are happening at a much faster pace than it was in prior years due to weather being even colder than expected, the market is likely to add a premium to prices. In fact, as it turns out, there is a high degree of correlation between prices and the relative storage inventory, as shown in Figure 1 below, which is taken from our NATGAS Billboard report, a joint venture with veteran forecaster Kyle Cooper of IAF Advisors. (For daily, detailed updates on North American natural gas markets, you can subscribe to our daily Billboard email and pdf report. And by popular demand, we now also have a separate Billboard Excel data file with historical daily gas production, imports/exports and demand volumes going back to 2010, as well as our near-term weather and demand forecast.)
Join Backstage Pass to Read Full Article
About the song
"The Long and Winding Road" was written by Paul McCartney and credited to Lennon-McCartney. It appears as the seventh cut on side two of The Beatles’ 12th studio album, Let It Be. Released as a single in May 1970, the song went to #1 on the Billboard Hot 100 Singles chart. It would be the 20th and last #1 single for The Beatles. McCartney wrote the song at his farm in Scotland, inspired by the growing tensions in the band during the filming of the “Let It Be” documentary film. McCartney was unhappy with the orchestral and chorale overdubs added to the song by producer Phil Spector. In 2003, McCartney oversaw the remix of Let it Be, entitled Let It Be...Naked. In that version, he removed the Spector embellishments and presented the song in its raw form. Personnel on the record were: Paul McCartney (lead vocals, acoustic piano), John Lennon (bass), George Harrison (electric guitar), Ringo Starr (drums), and Billy Preston (Fender Rhodes electric piano).
Let It Be is the 12th and final released studio album of The Beatles. It was recorded at Twickenham Studios and Abbey Road Studios in London between January 1969 and April 1970 as part of a documentary film showing The Beatles returning to their live-performing roots. In the finished film, you can sense the discord among the band members — they were basically breaking up The Beatles as the cameras rolled. The Spector-produced Let It Be album was released in May 1970, and went to #1 on the Billboard Top 200 Albums chart. It has been certified 4X Platinum by the Recording Industry Association of America. Three singles were released from the LP.
The Beatles were an English rock band formed in Liverpool in 1962. With band members John Lennon, Paul McCartney, George Harrison, and Ringo Starr, The Beatles changed the face of rock and roll. The band was featured in four motion pictures, and released 23 studio albums, five live albums, 53 compilation albums, 21 EPs, and 63 singles. They have sold more than 600 million records worldwide. The band has won one Academy Award, four Brit Awards, seven Grammy Awards, and 15 Ivor Novello Awards. They have a Grammy Lifetime Achievement Award, and are members of the Rock and Roll Hall of Fame. All four Beatles are Members of the Order of the British Empire. Paul McCartney was knighted by Queen Elizabeth II in March 1997; Ringo Starr (Richard Starkey) was knighted by the Duke of Cambridge in March 2018. The Beatles officially broke up in April 1970. John Lennon died in 1980, followed by George Harrison in 2001. McCartney and Starr continue to record and tour as solo artists.
Comments
Marcellus and Utica production in November could not grow because storage was full and takeaway constrained. I'm curious as to why you didn't mention that. How much production can come to pipe now that those conditions are changing? The dry gas rig count has increased 50% since August. What impact will that have on production?