Increased Production, Lower Demand and Warm Forecast Mean Low Prices Here To Stay

Highlights of the Natural Gas Summary and Outlook for December 18, 2015 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

• Price Action: The January contract fell 22.3 cents (11.2%) to $1.767 on a 23.9 cent range.
• Price Outlook: The market again easily posted a new low and the bias remains still lower with bearish weather forecasts still in place. The market, basis the spot month contract, has had a rather distinct pattern with 2 or 3 lower weeks followed by either an increase or inside week. Then, the market continues lower. Prices are historically low and the market has become accustomed to very bearish weather forecasts. Even less bearish forecasts may inspire a price bounce. However, unless absolute temperatures become less bearish, a sustained price rise is considered unlikely. CFTC data continued to reflect a reduction in the managed money net short position from almost 123,000 to 111,000. Total open interest now stands at 3.563 million as of December 15. Aggregated CME futures open interest fell to 1.013 million as of December 18.
• Weekly Storage: US working gas storage for the week ending December 11 indicated a net withdrawal of 34 bcf. Current inventories rise 551 bcf (16.7%) above last year while surpassing the 5 year average by 336 bcf (9.6%).
• Storage Outlook: This week’s storage change was mathematically larger than last year’s 64 bcf withdrawal and the 5 year average withdrawal of 139 bcf. This expanded the yearly and the 5 year average inventory surpluses. Continued forecasts for warm weather should keep withdrawals mathematically larger than the 5 year average in coming weeks. Due to the warm forecasts, inventories are now expected to remain above 2,000 bcf in April.
• Supply Trends: Total supply rose 0.8 bcf/d to 74.1 bcf/d. US production and Canadian imports rose while Mexican exports increased. LNG imports were unchanged. The US Baker Hughes rig count was unchanged with higher oil activity offsetting a drop in natural gas. The total US rig count now stands at 709. The Canadian rig count fell 12 and now stands at 162. Thus, the total North American rig count fell 12 to 871 and now trails last year by 1,395, which is down from last week’s record 1,441 yearly deficit. The higher efficiency US horizontal rig count rose 5 to 559 and falls 797 below last year.
• Demand Trends: Total demand fell 5.0 bcf/d to 77.7 bcf/d. All sectors were lower. Electricity demand fell 2,212 gigawatt-hrs to 72,279 which trails last year by 4,614 (6.0%) while trailing the 5 year average by 7,879 (9.8%).
• Other Factors: Nuclear generation rose 2,920 MW in the reference week to 88,226 MW. This is 6,707 MW lower than last year and 4,629 MW lower than the 5 year average. Units have had issues, but have recovered from many of those issues and output was recently nearly 91,000 MW.

The 2015/16 heating season is progressing at a still well below average pace. With a forecast through January 1, the 2015/16 total heating index is at 763 compared to 1,059 for 2014/15, 1,280 for 2013/14, 1,037 for 2012/13 and 1,013 for 2011/12.