The EIA announced a 7 Bcf injection for the week ended February 24. Market expectations were looking at a 4 Bcf withdrawal, with the full range of forecasts ahead of the release between an injection of 12 Bcf and a withdrawal of 22 Bcf. The report is bearish as it’s an injection during the winter. Forward prices were already trading 2-3 cents lower ahead of the EIA report and losses were slightly extended following the release meaning the bearish report was largely already accounted for. The April contract is currently trading at $2.76 MMBtu, down 3-4 cents from yesterday, at time of writing.
Working gas storage inventories increased to 2.363 Tcf and remain below last year and 5-year high levels by 187 Bcf. However, inventories remain above the 5-year average this week by 295 Bcf. See Drillinginfo EIA’s chart below with projections for end-of-the-season inventories under 5-year average withdrawals and weak withdrawals for the remainder of the season.
The March contract expired last week so winter has basically ended. However, final supply and demand figures will still define the end-of-the-season inventory and set us for the summer and rest of the year.
On the demand side, weather remains bearish. Most forecasts are projecting a warmer-than-normal March, but less mild than last year. LNG and Mexican exports remain strong and higher than 2016.
From the supply perspective, dry gas production volumes continue below 71 Bcf/d and almost 3 Bcf/d compared to a year ago. Canadian imports will continue to be a swing supplier of gas for te U.S. and this winter has demonstrated that. Imports were high during periods of high demand in the Northeast (up to 7 Bcf/d), but low when demand has lacked (4 Bcf/d).
Despite the no-show winter, the current level of production is concerning and not sufficient to refill storage inventories this summer. Drilling info still expect a rise in prices however, the increase will be smaller than initially expected (prices will not average $4.25 in 2017). This translates however into prices rallying above $3.50 and possibly $4.0 during the second half of the year to offset the summer injection short fall currently in the market.