Kyle Cooper

Mild Weather, Weak Electricity Demand Suppress Power Burn

Highlights of the Natural Gas Summary and Outlook for the week ending May 19, 2017 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

  • Price Action: The June contract fell 16.8 cent (4.9%) to $3.256 on a 24.7 cent range.
  • Price Outlook: After last week witnessed both a new high and low, this week posted a rare inside week despite a decent weekly range as prices barely missed last week’s levels. The market will begin to intently focus on weather forecasts and power burn levels. As nuclear units return from seasonal maintenance, if temperatures are moderate, power burn may be disappointing. However, pipeline data is not suggesting significantly rising production and thus prices will be largely dependent on the weather forecasts as summer approaches. CFTC data indicated another rise in the managed money net long position as longs added while more shorts liquidated. This is largest net long position since April 22, 2014. The short position is incredibly small. Total open interest rose to 3.997 million as of May 16. Aggregated CME futures open interest fell to 1.548 million as of May 19. The June $3.00 put is the highest open interest option followed by the July $4.00 call. The August $4.00 call is in 3rd.
  • Weekly Storage: US working gas storage for the week ending May 12 indicated a working gas storage injection of 68 bcf. Working gas inventories rose to 2,369 bcf. Current inventories fall (385) bcf (14.0%) below last year while surpassing the 5-year average by 262 bcf (12.4%).
  • Storage Outlook: Our EIA weekly storage estimate was mathematically 4 bcf smaller than the actual EIA report and is at the upper end of our tolerance range. The 5-week summation of our error remained at 15 bcf and is within our tolerance. The EIA has reported a net implied flow of 308 bcf over the last 5 weeks compared to our estimated 293 bcf. Our forecast for early November inventories is now 3,762 bcf. The forecasts use a 10-year rolling temperature profile past the 15-day forecast. Above normal national temperatures will now be considered bullish.
  • Supply Trends: Total supply rose +0.1 bcf/d to 71.5 bcf/d. All components were little changed this week. The US Baker Hughes rig count rose 16 with both oil and natural gas activity higher. The total US rig count now stands at 901. The Canadian rig count rose 5 to 85. Thus, the total North American rig count rose 21 to 986 and now exceeds last year by 538. The higher efficiency US horizontal rig count rose 17 to 759 and rises 445 above last year.
  • Demand Trends: Total demand fell 1.0 bcf/d to 64.5 bcf/d. Lower power demand more than offset higher R&C and industrial demand. Electricity demand fell 9 gigawatt-hrs to 69,261 which trails last year by (1,063) (1.53%) while trailing the 5-year average by (1,210) (1.7%).
  • Nuclear Generation: Nuclear generation rose 2,212 MW in the reference week to 76,149 MW. This is (6,276) MW lower than last year and (5,387) MW lower than the 5-year average. Recent output is near 79,500 MW.

The cooling season is beginning. With a forecast through June 2, the 2017 total cooling index is at 171 compared to 199 for 2016, 77 for 2015, 233 for 2014, 185 for 2013 and 319 for 2012 and 211 bcf for 2011.

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