The EIA announced a 68 Bcf withdrawal for the week ended March 3. The draw included a 4 Bcf reclassification from working gas to based gas in the South Central Salt region. If the reclassification is not included, the implied flow storage draw is 64 Bcf. Market expectations were looking at a 61 Bcf withdrawal, with the full range of forecasts ahead of the release between 51 and 77 Bcf. The report is bullish as the draw is larger than average market expectations and prices are trading 5 cents above yesterday with the prompt contract (April2017) at $2.953 per MMBtu, at time of writing.
Working gas storage inventories dropped to 2.295 Tcf and remain below last year and 5-year high levels by 192 Bcf. However, inventories remain above the 5-year average this week by 363 Bcf. See Drillinginfo EIA’s chart below including projections for end-of-the-season inventories under 5-year average withdrawals and weak withdrawals for the remainder of the season.
Overall market fundamentals are mostly unchanged from last week:
- Supply: dry gas production remains below 71 Bcf/d (almost 2-3 Bcf/d from levels seen a year ago). Canadian imports continues behaving as a marginal supply, fluctuating with demand in the Midwest and Northeast.
- Demand: weather forecasts are milder-than-normal, but colder than last year. Residential, commercial and power are slightly up week-on-week. LNG exports is down to only 1.1 Bcf/d compared to 2 Bcf/d a couple of weeks ago. This is due to commissioning on Train 3 concluding, however volumes should return in the near team as the train is expected to be fully in service later this month.
The lack of production growth and higher-than-2016 demand will continue to bring storage withdrawals larger than 2016. Next week’s EIA release is projected around 50-60 Bcf draw compared to a 9 Bcf last year. Similarly, an injection in the week after was reported in 2016 compared to another draw for this year.
The end-of-the-season inventory on either side of 2.0 Tcf has already been factored in prices with the March contract expiring at $2.627 MMBtu. Looking ahead, the market seems to have realized that the current (low) levels of production are not sufficient to meet growing demand as prices have gained about 30 cents in the last two weeks. The mild winter only delayed the supply impact as demand didn’t show up. Drillinginfo continues to expect prices to increase from current levels to support additional investment in drilling activity.
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