Prices Could Fall Below $3 if Weather Does Not Stay Cold Until the End of Winter

Highlights of the Natural Gas Summary and Outlook for February 15, 2013 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

• Price Action: The market was quite a bit weaker as prices fell 11.9 cents (3.6%) to $3.153 on a 19.8-cent range.
• Price Outlook: The market did establish a new low for the week, as was our bias as another mathematically larger injection pushed the market lower. Considering that the end of winter is rapidly approaching and the need to drop to only $3.124, a new weekly low is expected. Unless the weather remains quite bullish, a test of the $3 level is probable. The rise in speculative net length continued with the 5th consecutive weekly increase. However, the rise was rather muted and certainly the recent weakness may actually stem the speculative increase. The net length is now quite close to the late 2012 levels. However, with winter coming to an end and the recent slide in price, liquidation could now precipitate a further price drop. Total open interest rose to 4.73 million contracts as of February 12 and open interest across the petroleum complex is also surging. WTI open interest set a new all-time high this week.
• Weekly Storage: US working gas storage fell 157 BCF for the week ending February 8. Current inventory levels of 2,527 BCF now fall 234 BCF (8.5%) below last year while surpassing the 5 year average by 357 BCF (16.5%).
• Storage Outlook: This week was similar to last week as the weekly storage change was bullish compared to last year while bearish to the historical averages. This situation primarily reflects the incredible warmth witnessed last year and is expected to continue into April.
• Supply Trends: Total supply was flat as at 68.1 BCF/D as all components were little changed. The US Baker Hughes rig count rose 3 to 1,762 with increased oil activity offsetting a decline in natural gas. Canadian activity rose again and thus the total North American rig count increased by 23 to 2,413, which now trails last year by 286. The higher efficiency US horizontal rig count fell 4 and at 1,139 falls 24 behind last year.
• Demand Trends: Total demand rose 4.7 BCF/D to 89.5 BCF/D as all demand sectors were higher. R&C recorded the largest increase. Electricity demand fell 927 gigawatt-hrs to 75,447, which trails last year by 405 (0.5) and the 5 year average by 4,157 (5.2%). Total demand will begin to fall rapidly in coming weeks as temperatures climb.
• Other Factors: The S&P 500 continued to advance, although barely, with equities up every week to begin 2013.