Kyle Cooper

Prices Collapse on String of Bearish Weather Revisions

Highlights of the Natural Gas Summary and Outlook for the week ending February 24, 2017 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

  • Price Action: The March contract fell 20.7 cents (7.3%) to $2.627 on a 30.4 cent range.
  • Price Outlook: Prices continued lower at an accelerated pace as Mother Nature remains incredibly bearish. However, prices did find some support as Thursday and Friday did actually witness slightly bullish weather forecasts. There have only been 6 daily weather updates considered bullish in 2017. Still, this week’s updated weather forecast added 54 bcf to weather only storage projections as normal heating demand remains nonexistent. CFTC data indicated a substantial reduction in the managed money net long position as shorts added while longs liquidated. Total open interest rose to 3.808 million as of February 21. Aggregated CME futures open interest rose to 1.293 million as of February 24.
  • Weekly Storage: US working gas storage for the week ending February 17 indicated a (89) bcf withdrawal that dropped total working gas inventories to 2,356 bcf. Current inventories fall (228) bcf (8.8%) below last year while surpassing the 5-year average by +163 bcf (7.5%).
  • Storage Outlook: Our EIA weekly storage estimate was mathematically 9 bcf larger than the actual EIA report and is above our tolerance range. The 5-week summation of our error rose to 7 bcf and is within our tolerance. The EIA has reported a net implied flow of (556) bcf over the last 5 weeks compared to our estimated (549) bcf. Our estimation for early April inventories is 2,139 bcf. This forecast continues to rise as temperature forecasts remain well above normal. The forecasts use a 10-year rolling temperature profile past the 15-day forecast. Above normal national temperatures are bearish until mid-May.
  • Supply Trends: Total supply rosel+0.7 to 71.5 bcf/d. Canadian and LNG imports and Mexican exports rose. US production and LNG imports fell. The US Baker Hughes rig count rose 10 as both oil and natural gas activity rose. The total US rig count now stands at 751. The US Baker Hughes rig count rose 3 as oil activity rose while natural gas slipped. The total US rig count now stands at 754. The Canadian rig count rose 10 to 341. Thus, the total North American rig count rose 13 to 1,095 and now exceeds last year by 418. The higher efficiency US horizontal rig count rose 10 to 624 and rises 227 above last year.
  • Demand Trends: Total demand fell (5.8) bcf/d to 82.6 bcf/d. R&C demand led all sectors lower. Electricity demand fell 2,511 gigawatt-hrs to 72,338 which trails last year by 3,007 (4.0%) and trails the 5-year average by 5,042 (6.5%).
  • Other Factors: Nuclear generation fell 285 MW in the reference week to 91,400 MW. This is 1,105 MW higher than last year and 1,266 higher than the 5-year average. Recent output is near 89,000 MW.

The 2016/17 heating season is entering the final 1/3 of winter. With a forecast through March 10, the 2016/17 total heating index is at 2,026 compared to 2,080 for 2015/16, 2,551 for 2014/15, 2,755 for 2013/14, 2,489 for 2012/13 and 2,364 for 2011/12 and 2,716 bcf for 2010/11.

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