Highlights of the Natural Gas Summary and Outlook for December 26 2014 follow. The full report is available at the link below.
Natural Gas Summary and Outlook
- Price Action: The January contract fell 45.7 cents (13.2%) to $3.007 on a 37.8 cent range.
- Price Outlook: The market easily established a new low for the 5th consecutive week as weather forecasts that do indicate a cold shot in early January moderated the cold. At the same time, the weather forecasts are extending closer and closer to the historically coldest day of the year and also the midpoint of winter. Thus, any fear of shortages that may have been present is rapidly fading. Since 2000, there have been 20 instances of exactly 5 down weeks in a row and 10 of exactly 6. With weather still deemed bearish, a price rebound is not expected. However, the market is now becoming extended to the downside and thus the likelihood of a short-covering rally is increasing. The CFTC data was not updated due to the Christmas Holiday. CME futures aggregated open interest rose to 923,000 as of December 24.
- Weekly Storage: US working gas storage for the week ending December 19 indicated a draw of 49 bcf. Thus total working gas inventories fell to 3,246 bcf. Current inventories rise 175 bcf (5.7%) above last year while still trailing the 5 year average by 178 bcf (5.2%).
- Storage Outlook: Even though there is a cold snap now predicted, cold temperatures and a bullish supply/demand balance last year resulted in large withdrawals. Thus, the yearly surplus is likely to continue to expand in early 2015 and keep pressure on the market. It is easy to envision a surplus near 900 bcf by the end of March. This is still very dependent on actual temperatures and there are still many calling for below normal temperatures in January and February.
- Supply Trends: Total supply rose 0.4 bcf/d to 77.0 bcf/d. US production was higher. Canadian imports and Mexican exports were lower. LNG imports were unchanged. The US Baker Hughes rig count was not updated due to the Christmas Holiday. US E&P companies are continuing to announce reductions to capex budgets. Still, we do not envision a supply response in the first quarter and only a possible slowing to growth rates in the 2nd quarter. There are still too many projects underway and company production guidance estimates to meet. However, the longer oil and natural gas prices remain at this level, the more significant the eventual response.
- Demand Trends: Total demand fell 0.4 bcf/d to 80.2 bcf/d. Power and industrial demand were lower with R&C demand higher.
- Other Factors: The S&P 500 rose to a new record as buying continued and decent economic data helped support the rise.
Our proprietary heating index remained in 3rd place with a forecast through January 9. The total index stands at 1,254 compared to 1,440 for 2013/14, 1,225 for 2012/13, 1,189 for 2011/12 and 1,380 for 2010/11.
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