You Keep Me Hangin' On - Will U.S. Natural Gas Avoid A Collapse This Year?

After ending 2016 on a bullish note, the U.S. natural gas market has been hammered so far in 2017 by relentlessly mild weather—January 2017 ranked as the fifth warmest in 40 years. The prompt CME/NYMEX Henry Hub futures contract, which had climbed to nearly $4.00/MMBtu by late December 2016, has come off more than $1.00 since then to settle at $2.834/MMBtu as of last Friday (February 17, 2017). With every balmy winter day that passes, the chances of sustained $3-$4 natural gas prices seem to be fading away. Nevertheless, there are still some bulls out there hanging on in hopes of a rebound. Prices are still well above year-ago levels and the underlying supply/demand balance continues to carry the implied potential for tightening if given even normal weather. In today’s blog, we provide an update of the gas supply/demand balance, starting with a recap of how we got here.

This is the latest of our periodic updates on the fundamental factors influencing the U.S. natural gas market—in particular the supply/demand balance, based on daily supply/demand data from our NATGAS Billboard report (RBN’s joint report with IAF Advisors). When we last wrote about the U.S. natural gas supply/demand balance in mid-December 2016 in The Long and Winding Road, the storage inventory had managed to decline from a record high a month earlier in mid-November to near the five-year average. Production was lagging. LNG and Mexico exports were ramping up. Demand on a per-degree basis was strong. And the overall supply/demand balance suggested the market was headed for a bullish start to 2017, assuming normal to cooler-than-normal weather. Instead, since the New Year, weather has been almost unceasingly bearish, with the potential to derail what the market expected would be a recovery in 2017.

NATGAS Permian Report

The NATGAS Permian Report is a weekly natural gas fundamentals analysis focusing entirely on the key market drivers within the Permian basin. The report contains details and forecasts around natural gas production, demand, and pricing. It offers a summary of pipeline outflows and capacities from the Permian to neighboring regions, outlining the key shifts in flows to the West, MidCon, and Texas intrastate markets.

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We’ll get to how fundamentals could play out this year in the next part of this blog series. But first, it’s worth taking a step back to review how we got here. So we start today with a recap of supply/demand dynamics in 2016.

2016 Recap

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