Friday, November 6, 2015

Natural Gas: EIA Weekly Supply/Demand Report--Production and Weather Continue to Weigh

As we said yesterday, despite the slightly-lower than expected storage injection we expect the futures to head south with $2.20 the first target. Front month Decembers $2.320, down 4.4 cents.
From the Energy Information Administration:

In the News:

Winter natural gas futures prices are significantly lower than previous years
The winter natural gas futures strip, the four contracts from December 2015 through March 2016, averaged $2.419 per million British thermal units (MMBtu) over the report week (Wednesday, October 28, through Wednesday, November 4). This is nearly 40% lower than the five-year average, and one-third lower than the five-year minimum in trading on the New York Mercantile Exchange (Nymex). There are several factors driving these lower prices, including:

Year-over-year production growth: As reported in EIA's recently released Natural Gas Monthly, in August dry natural gas production reached record high levels for any month since EIA began reporting that data series. Dry natural gas production for August averaged 76.5 billion cubic feet a day (Bcf/d), a 7% increase over August 2014. Although EIA's latest Short-Term Energy Outlook is showing a slowdown in month-to-month production growth, compared to the previous year, average dry natural gas production in December to March is forecast to reach levels around 2% over the previous year's levels for that time period.

Record storage levels: After surpassing the five-year average on May 29, natural gas storage as of October 30 was 3,929 Bcf, matching the record level reported by EIA's Weekly Natural Gas Storage Report on November 2, 2012. Injections totaled 2,453 Bcf from April 3 to October 30, 15% larger than the five-year average, but 280 Bcf short of last year's record injection over the same time period.
Forecast for relatively warm weather: The U.S. Winter Outlook, released October 15 by the National Oceanic and Atmospheric Administration (NOAA), reflects an El NiƱo event, which will likely bring warmer-than-normal temperatures across the northern and western United States. Based on forecasts for warmer-than-normal temperatures, EIA's Winter Fuels Outlook, released October 6, forecasts a 6% decline in residential natural gas consumption this winter. With nearly half of all U.S. households heating with natural gas, residential consumption, the sector most responsive to winter temperatures, represents over 25% of the total natural gas consumption over November 2015 through March 2016. Total U.S. consumption is forecast to average 90 Bcf/d over that time period....
 Winter Nymex strip, October 28 through November 4 average

Mean Temperature Anomaly (F) 7-Day Mean ending Oct 29, 2015