Lower Canadian Imports and Higher Exports to Mexico Offset Increasing US Supplies

Highlights of the Natural Gas Summary and Outlook for Nov 8 2013 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

• Price Action: Prices rose 4.6 cents (1.3%) to $3.559 on a 24.3 cent range.
• Price Outlook: Prices did indeed establish a new weekly low with the string now extended to 3 consecutive weeks. Since 2000, there have been 53 instances where exactly 3 lower weeks in a row occurred. There have been 33 weeks where exactly 4 lower weeks in a row have occurred. While it seems likely the current new weekly low streak will end and there is a bias to a new high, the weather model volatility has been extreme and both a new high and low is not out of the question. The CFTC finally caught up with data that is now up to date. With today’s technology it remains a bit perplexing why the data is 3 day’s delayed, but that is another topic. There was a huge slide in the net long speculative position with the market heavily discounting winter. This is the smallest net combined long position since January. Total open interest across the complex fell to 4.64 million contracts. CME futures open interest is still at 1.28 million contracts as of November 7.
• Weekly Storage: US working gas storage for the week ending November 1 indicated a weekly injection of 35 bcf. Thus, current inventories of 3,814 bcf fall 115 bcf (2.9%) below last year while exceeding the 5 year average by 58 bcf (1.5%).
• Storage Outlook: The weekly storage comparison, while simplistic, is considered an important market factor. In this light, next week will again be bearish with last year witnessing a draw of (18) bcf. However, looking into late November and December, the weekly storage comparisons are likely to turn more bullish. Peak storage levels now look to reach approximately 3,825 bcf as updated weather forecasts no longer look for builds well into November.
• Supply Trends: Total supply fell 0.1 bcf/d to 69.5 bcf/d. Higher US production was offset by falling Canadian imports and rising Mexican exports. The US Baker Hughes rig count rose 12 with oil and natural gas both increasing. Canadian activity fell 16. Thus the total North American rig count decreased by 4 to 2,132 and trails last year by 44. The higher efficiency US horizontal rig count rose 10 to 1,114 and rises 10 above last year. E&P companies are continuing to release 3rd quarter results and total BOE growth rates remain astounding and headline wells impressive Natural gas performance is less amazing. Headlines continue to focus on increasing US production and there should be little doubt that lower 48 US natural gas output is establishing new records. Still, net US supply is not increasing at nearly the same pace with lower net Canadian imports and higher Mexican exports slowing the total supply increase. We expect total US supply to rise, but not at the same pace as US production.
• Demand Trends: Total demand slipped 2.6 bcf/d to 63.3 bcf/d. R&C consumption led all categories lower. Electricity demand slipped 493 gigawatt-hrs to 68,770, which tops last year by 52 (0.1%) while trailing the 5 year average by 1,440 (2.1%). Temperature adjusted demand remains very healthy.  
• Other Factors: The S&P 500 remains very near all-time highs with Q3 reports still helping to support the market.