DI Blog

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Natural gas storage inventories decreased 173 Bcf for the week ending January 25, according to the EIA’s weekly report. This draw is well below the market expectation, which was a decrease of 184 Bcf.

Working gas storage inventories now sit at 2.197 Tcf, which is 14 Bcf below last year and 328 Bcf below the five-year average.

At the time of this writing, the March 2019 contract was trading at $2.830/MMBtu, $0.024 below yesterday’s close of $2.854/MMBtu. The February 2019 contract expired at $2.950/MMBtu on Tuesday.

The first real cold spell of the season hit the lower 48, producing subzero temperatures. The upper Midwest had temperatures drop below -20 degrees Fahrenheit, but futures prices didn’t seem to react to the drastic cold; the March 2019 contract stayed well below $3/MMBtu. Even with the demand surge, the market seems comfortable with where we sit with storage inventories and production levels. Should February have below-average temperatures for a prolonged period of time, a concern for inventory levels may come back to the market. However, without a cold shot, prices will be bearish and stay below $3/MMBtu.

See the chart below for projections of the end-of-season storage inventories as of April 1, the end of the withdrawal season.

This Week in Fundamentals

The summary below is based on Bloomberg’s flow data and DI analysis for the week ending January 31, 2019.

Supply:

  • Dry gas production increased 0.67 Bcf/d on the week. The main contributors to the increase were the South Central/Gulf (+ 0.54 Bcf/d) and the Mountain (+0.11 Bcf/d) regions. In the South Central/Gulf region, Texas was the main driver of the production increase, gaining 0.36 Bcf/d on the week.
  • Canadian net imports were up 0.71 Bcf/d on the week. The increase in net imports is mainly attributed to reduced exports from the US to Canada due to the extreme cold in the upper Midwest.

Demand:

  • Domestic natural gas demand increased 10.12 Bcf/d week-over-week. Res/Com demand increased 7.48 Bcf/d, with most of the demand coming from the Midwest and the East. Power and Industrial demand both increased on the week, gaining 1.76 Bcf/d and 0.88 Bcf/d, respectively.
  • LNG exports increased 0.01 Bcf/d, while Mexican exports increased 0.18 Bcf/d on the week.

Total supply is up 1.38 Bcf/d, while total demand gained 10.64 Bcf/d week-over-week. With the increase in demand outpacing the increase in supply, expect the EIA to report a stronger draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 250 Bcf for next week. Last year, the same week saw a draw of 119 Bcf, while the five-year average is 152 Bcf.

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