Highlights of the Natural Gas Summary and Outlook for March 27, 2015 follow. The full report is available at the link below.
Natural Gas Summary and Outlook
- Price Action: The April contract fell 11.2 cents (3.9%) to $2.727 on a 20.2 cent range.
- Price Outlook: Natural gas easily established a new low as the EIA reported the 1st injection of 2015. With a weekly close near last week’s low, a new low is clearly the preferred path. Even though a draw is likely next week which will possibly drop inventories below the March 13 1,467 bcf level of storage, an even larger draw last year will still expand the yearly storage surplus, While simplistic, the change in the yearly storage comparison has been a strong driver of price action in recent years. The CFTC data indicated a substantial surge in the managed money net short speculative position to the largest since early March. Total open interest as of March 24 fell slightly to 3.62 million contracts while the option related position rose. CME futures aggregated open interest slipped to 977,000 as of March 26. Despite the surge in the net short position, there is still ample room for more selling.
- Weekly Storage: US working gas storage for the week ending March 20 indicated a build of 12 bcf. Thus total working gas inventories rose to 1,479 bcf. Current inventories rise 583 bcf (65.1%) above last year while trailing the 5 year average by 180 bcf (10.8%).
- Storage Outlook: A withdrawal is now expected for the week ending March 27 that may or may not drop storage below 1,467 bcf. However, with a large withdrawal in 2014 and examining 2014 storage changes, the yearly storage surplus is expected approach 700 bcf in mid-April. If the pace of injections does not begin to reduce this surplus, prices are likely to head lower. Recent weekly storage withdrawals have indicated a gradual tightening of the supply/demand balance. While still considered bearish, a continuation of the recent trend may help prices find support.
- Supply Trends: Total supply rose 0.9 bcf/d to 76.0 bcf/d. US production and Canadian imports were higher with Mexican exports lower. LNG imports fell. The US Baker Hughes rig count fell 21 as both oil and natural gas activity declined. The total US rig count now stands at 1,048. The Canadian rig count fell 20 to 120. Thus, the total North American rig count fell 41 to 1,168 and now trails last year by 939. The higher efficiency US horizontal rig count fell 17 to 812 and falls 399 below last year. This is lowest US horizontal rig count since June 4, 2010. Currently, we estimate 25 total Utica rigs are required to maintain natural gas output. There are currently 30 total rigs operating in the Utica. This is not a static number and estimates will be updated monthly.
- Demand Trends: Total demand fell 7.8 bcf/d to 71.3 bcf/d. Most sectors were lower with power demand slightly higher. Electricity demand fell 545 gigawatt-hrs to 70,450 which trails last year by 2,416 (3.3%) and the 5 year average by 120 (0.2%).
- Other Factors: Nuclear output in the reference week continues its’ normal seasonal decline, albeit at a slower pace. Output is still well above last year and now also exceeds the 5 year average. Seasonal maintenance is expected to peak in mid-April.
- Our proprietary heating index remained in 4th place with a forecast through April 10. The total index stands at 2,840 compared to 3,318 for 2013/14, 2,920 for 2012/13, 2,508 for 2011/12 and 3,059 for 2010/11.
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