If Pace Of Injections Doesn’t Begin To Reduce Surplus In May, Prices Likely To Head Lower

Highlights of the Natural Gas Summary and Outlook for April 3, 2015 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

• Price Action: The May contract fell 12.3 cents (4.7%) to $2.713 on a 13.6 cent range.
• Price Outlook: Natural gas recorded a rare inside week on the smallest weekly range since April 20, 2012. The weekly high was $2.719 and the low was $2.583. The close near the high suggests an upward path is of least resistance. Looking forward, the small weekly range suggests both a new high and low are quite possible. However, the market may very well chop about until May when the real test of 2015 storage injections compares against the huge 2014 injections. CFTC data indicated another huge increase in the managed money net short speculative position to the largest since January 12, 2012. Total open interest plunged to just 3.47 million as of March 31. This is the smallest open interest level since January 10, 2010. Thus, the current position is extremely large as a percent of the total market. Combined open interest rose to 1.005 million as of April 2. This is first time open interest has been over 1 million since February 23. This does introduce the possibility of a significant short covering rally.
• Weekly Storage: US working gas storage for the week ending March 27 indicated a draw of 18 bcf. Thus total working gas inventories fell to 1,461 bcf. Current inventories rise 639 bcf (77.7%) above last year while trailing the 5 year average by 188 bcf (11.4%).
• Storage Outlook: A small build is expected for the week ending April 3 that will nearly match last year’s change. Forecasts still suggests the yearly storage surplus is expected to slightly exceed 675 bcf in mid-April. If the pace of injections does not begin to reduce this surplus in May, prices are likely to head lower.
• Supply Trends: Total supply fell 0.1 bcf/d to 75.9 bcf/d. US production was higher with Canadian and LNG imports lower. Mexican exports rose. The US Baker Hughes rig count fell 20 as both oil and natural gas activity declined. The total US rig count now stands at 1,028. The Canadian rig count fell 20 to 100. Thus, the total North American rig count fell 40 to 1,128 and now trails last year by 925. The higher efficiency US horizontal rig count fell 13 to 799 and falls 425 below last year. This is lowest US horizontal rig count since June 4, 2010. Monthly EIA data revised December lower 48 US production even higher to a record 73.72 bcf/d while weather factors dropped January 1.2%. Currently, we estimate 196 total Eagle Ford rigs are required to maintain natural gas output. There are currently 137 total rigs operating in the Eagle Ford. This is not a static number and estimates will be updated monthly.
• Demand Trends: Total demand rose 3.5 bcf/d to 74.7 bcf/d. Most sectors were higher with power demand slightly lower. Electricity demand rose 483 gigawatt-hrs to 70,933 which trails last year by 1,783 (2.5%). It surpasses the 5 year average by 371 (0.5%). Monthly EIA data revealed January demand was the 2nd highest despite near normal national temperatures.
• Other Factors: The trend in nuclear output has not changed in the reference week as it continues its’ normal seasonal decline, albeit at a slower pace. Output is still well above last year and also exceeds the 5 year average.
• Our proprietary heating index remained in 4th place with a forecast through April 17 as the heating season comes to a close. The total index stands at 2,836 compared to 3,193 for 2013/14, 2,954 for 2012/13, 2,540 for 2011/12 and 3,085 for 2010/11.