Kyle Cooper

Prices slide as Mother Nature remains bearish

Highlights of the Natural Gas Summary and Outlook for the week ending February 9, 2017 follow. The full report is available at the link below.

  • Price Action: The March contract fell 26.2 cents (9.2%) to $2.584 on a 30.4 cent range ($2.880/$2.576).
  • Price Outlook: The market continued to slide as Mother Nature turned more bearish and market is beginning to eye the end of winter and beginning of injection season. While late February and early March can still witness strong national demand, with withdrawals of over 200 extending having occurred in the first of March and a withdrawal of nearly of 200 during the 2nd week of March, temperatures will be rising and there is no fear of major deliverability issues at this time. The current 15-day forecast is warmer than 8 of the previous 10 years. CFTC data indicated a 25,009 contract reduction in the managed money net long position as longs liquidated and shorts added. Total open interest fell 13,000 to 3.702 million as of February 6. Aggregated CME futures open interest fell to 1.371 million as of February 9.Open interest in the March $4.00 call rose +11,736 to 158,463. Open interest in the March $4.00 call fell (1,181) to 157,282. Open interest in the March $3.50 call fell (5,971) to 97,847. Open interest in the March $2.75 put fell (1,458) to 82,327.
  • Weekly Storage: US working gas storage for the week ending February 2 indicated a withdrawal of (119) bcf. Working gas inventories fell to 2,078 bcf. Current inventories fall (481) bcf (18.8%) below last year and (414) bcf (16.6%) below the 5-year average.
  • Storage Outlook: Our EIA weekly storage estimate was 1 bcf from the actual EIA implied flow and was finally within our tolerance. The actual EIA report returned to near the model regression after weeks of flip-flopping individual model projections. The forecasts use a 10-year rolling temperature profile past the 15-day forecast.
  • Supply Trends: Total supply fell (0.6) bcf/d to 76.2 bcf/d. US production rose. Canadian imports fell while LNG exports rose. LNG imports and Mexican exports were unchanged. The US Baker Hughes rig count rose +29 as both oil and natural gas activity increased. The total US rig count now stands at 975. The Canadian rig count fell (17) to 325. Thus, the total North American rig count rose +12 to 1,300 and now exceeds last year by +207. The higher efficiency US horizontal rig count rose +24 to 808 and rises +225 above last year.
  • Demand Trends: Total demand rose +2.3 bcf/d to 89.4 bcf/d. All sectors except industrial were higher as temperatures fell. Industrial demand was unchanged on the week. Electricity demand rose +1,955 gigawatt-hrs to 77,889 which exceeds last year by +993 (1.3%) and trails the 5-year average by (629) (0.8%).
  • Nuclear Generation: Nuclear generation fell (7) MW in the reference week to 96,104 MW. This is +2,867 MW higher than last year and +3,018 MW higher than the 5-year average. Recent output was at 95,067 MW.

The heating season is now past its midpoint. With a forecast through February 23 the 2018 total heating index is at 1,971 compared to 1,806 for 2017, 1,877 for 2016, 2,233 for 2015, 2,471 for 2014, 2,194 for 2013, 2,103 for 2012 and 2,465 for 2011.