Highlights of the Natural Gas Summary and Outlook for September 30, 2016 follow. The full report is available at the link below.
Natural Gas Summary and Outlook
- Price Action: The now prompt November contract fell 10.7 cents (3.6%) to $2.906 on an 18.7 cent range.
- Price Outlook: After two weeks higher, prices could not post either a new high or low based on spot contract levels, a rare inside week. Recognizing limitations of spot contract comparisons, this remains our chosen approach. Based on November prices, the market did post a new low as the market sold off despite an EIA injection below market expectations. The yearly storage surplus has contracted for an astounding 27 weeks in a row. However, prices did slip to end the week as above average temperatures now become bearish and Marcellus cash prices were below 25 cents for the weekend. The outlook has turned somewhat more bearish near-term with recent physical data decidedly less bullish. CFTC data indicated another sizable increase in the managed money net long position as longs added slightly and a large number of shorts liquidated. The net long position is the largest since July 1, 2014. Total open interest fell to 3.350 million as of September 27. Aggregated CME futures open interest rose to 1.096 million as of September 30.
- Weekly Storage: US working gas storage for the week ending September 23 indicated a net injection of +49 bcf that lifted total working gas inventories to 3,600 bcf. Current inventories rise 63 bcf (1.8%) above last year while surpassing the 5 year average by 218 bcf (6.4%).
- Storage Outlook: Our EIA weekly storage estimate was mathematically 3 bcf higher than the actual EIA report and is within our tolerance range. The 5 week summation of our error fell to 4 bcf as the EIA has reported a net implied flow of +250 bcf compared to our estimated +246 bcf. For a 5 week period, this is within our tolerance range. Our current estimation for early November inventories is 3,896 bcf.
- Supply Trends: Total supply rose 0.8 bcf/d to 74.6 bcf/d. US production and Mexican exports fell. Canadian and LNG imports were unchanged. The US Baker Hughes rig count rose 11 as both oil and natural gas activity rose. The total US rig count now stands at 522. The Canadian rig count rose 24 to 162. Thus, the total North American rig count rose 35 to 684 and now trails last year by 304, which is down from the record 1,441 yearly deficit recorded on December 11, 2015. The higher efficiency US horizontal rig count rose 5 to 407 and falls 202 below last year.
- Demand Trends: Total demand fell 0.4 bcf/d to 64.9 bcf/d. Higher power demand was offset by lower industrial and R&C demand. Electricity demand rose 1,383 gigawatt-hrs to 81,953 which exceeds last year by 6,046 (8.0%) and the 5 year average by 8,298 (11.3%). Although electricity generation is typically a summer concern, we would note the increase in July coal generation as well as the increases in wind and solar generation capacities that may limit natural gas burns in 2017.
- Other Factors: Nuclear generation fell 1 MW in the reference week to 89,098 MW. This is 1,987 MW higher than last year and 257 MW higher than the 5 year average. Recent output is near 85,750 MW.
The 2016 cooling season is winding down. With a forecast through October 14, the 2016 total cooling index is at 5,482 compared to 4,401 for 2015, 3,451 for 2014, 4,811 for 2013, 7,205 for 2012 and 6,706 for 2011. The heat is primarily concentrated in the West.
