Temperature Adjusted Electricity Demand Remains Tepid

Highlights of the Natural Gas Summary and Outlook for July 12, 2013 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

• Price Action: Prices rose 2.7 cents (0.7%) to $3.644 on a still rather small 21.3 cent range.
• Price Outlook: The market could not establish another weekly low as was the slight bias. However, maintaining historical tendencies, the market did manage to rise enough to make a new high. Although, the market has seemingly found support in the $3.50 area, injections are forecast to remain well above last year and the weather forecasts are simply not foreboding. Thus, there is a slight bias toward establishing a new weekly low next week. Although seemingly rather simplistic, the change in the yearly inventory comparison is very influential. A shrinking surplus, even from record levels, such as in 2012, is generally bullish. Likewise, a diminishing deficit is typically bearish. While many other factors are also involved, this factor is important. The CFTC data revealed a continued decline in the still rather large net long speculative position. In general, the speculative net long position has followed the price action quite closely. Total open interest, on a delta adjusted basis, across the complex stood at 5.14 million as of July 9. CME open interest was 1.39 million contracts as of July 11.
• Weekly Storage: US working gas storage rose 82 bcf for the week ending July 5. Current inventory levels of 2,687 bcf now fall 448 bcf (14.3%) below last year and 15 bcf (0.6%) behind the 5 year average.
• Storage Outlook: While the yearly storage deficit remains large, the reduction from the 814 bcf (31.9%) deficit of April 19 remains a primary market driver. With injections last year below 30 bcf until mid-August, the reduction in the yearly storage deficit is likely to continue at a high pace with the deficit projected to be below 300 bcf by mid-August.
• Supply Trends: Total supply fell 0.4 bcf/d to 68.5 bcf/d. US production rose while Canadian imports fell. Mexican exports edged higher. The US Baker Hughes rig count rose 2 with oil activity dropping while natural gas increased. Canadian activity rose 80. Thus the total North American rig count expanded by 82 to 2,053 which now trails last year by 196. This is the first YOY deficit smaller than 200 since April. The higher efficiency US horizontal rig count fell 10 and at 1,058 falls 108 behind last year. With the 2nd quarter completed, we will begin reviewing E&P reports to analyze results including IP rates, drill times, costs and outlooks. The US E&P industry continues to improve and get more from less.
• Demand Trends: Total demand fell 1.5 bcf/d to 57.1 bcf/d. Power demand fell and more than offset higher R&C demand. Industrial consumption was unchanged. Electricity demand fell 6,427 gigawatt-hrs to 81,804, which trails last year by 11,227 (12.1%) and the 5 year average by 4,272 (5.0%). Temperature adjusted electricity demand remains tepid and is still considered a bearish factor.
• Other Factors: The S&P 500 continued to push higher with prices now near the May 22 intraday high.