Key Points: Bloomberg scrapes show us that gas field production was higher by 460 MMcf/d or nearly 3.2 Bcf/d for the week. Demand rose in all major categories especially residential and commercial consumption by almost 38 Bcf when compared to the previous week. Canadian imports rose by 0.78 Bcf/d and helped to increase supply of natural gas in the market during the polar vortex week.
Our analysis leads us to expect the EIA to report later this week that there was a 218 Bcf withdrawal for the previous week ended Jan. 1 (a stronger pull amid severe weather than the five-year average withdrawal of 143 Bcf). Our estimate compares to the current 227 Bcf consensus whisper expectation.
The report week saw a severe polar vortex in the Midwest with temperatures plunging to -50F and has resulted in record high heating demand. On Jan. 30, the daily residential and commercial gas consumption had its peak value at 70 Bcf/d. If such record high demand was to continue, we would have expected the natural gas prices to increase. But weather is quickly moderating and a warming trend seen so far is driving Henry Hub natural gas prices to decline to the environs of $2.7/MMBtu, far below the January monthly high price of $3.6/MMBtu. We note the Chicago City Gate price peaked at over $7/MMBtu during the report week but exited the week below $3/MMBtu as well.
Supply – Negative
Average field supply has increased slightly to settle at 84.59 Bcf/d or 3.2 Bcf increase in total compared to previous week. There was increased risk for production freeze-offs during the report week although little was changed regarding production according to the available data. Parts of the Bakken shale play were facing sub-zero temperatures with similar conditions expected to prevail through early February. We anticipate an impact on production could soon arise due to freeze-offs at the wellhead. Greater production from the data even for this wintry week indicates supply pressures can only offer a slight negative effect to price activity this week.
Weather – Neutral
Heating demand was likely at its strongest value for the 2018/2019 winter given the polar vortex seen over last week’s report period. That ultra-cold period has however given way to warmer conditions over the weekend through today, with Chicago temperatures now above freezing as of midday Tuesday. The current NOAA 6-10 and 8-14 day short-term forecasts show relatively cold temperatures in parts of Northeast and Midwest while it is warmer than normal for rest of the continental U.S. All in, we see weather as being more normal this week than the prior vortex week, so we see weather as a neutral driver for gas prices for the report week.
Trader Sentiment - Neutral
The CFTC Feb 1 Commitment of Traders data is unavailable because of delayed release. We believe that trader sentiment is neutral for the report week.
Storage – Positive
We estimate a storage withdrawal of 218 Bcf will be reported by EIA this week for the week ended Jan 8. In the previous forecast, EIA reported a 173 Bcf withdrawal for the week ended Jan. 25. All five regional storages reported a decrease in the inventories with the Midwest region reporting a 67 Bcf decrease, highest amongst all regions. We expect this trend to continue into the report week as well. Our 218 Bcf withdrawal expectation for this week is higher than the five-year average value of 143 Bcf for the same week. We expect this week’s withdrawal is likely to be the largest of the season. We see storage changes as a positive driver this week.
Demand – Positive
The polar vortex during the past week has resulted in higher heating demand. The most increase week-on-week was seen in the residential and commercial consumption. The average consumption for the report week was 56.38 Bcf/d, a marked increase from the values seen in the late 30’s during the first two weeks of January. The power generation and industrial use demand also increased by 1.26 Bcf/d. As strong as that sounds, we think the increase might have been higher but many schools and companies closed down during the winter storm. Nevertheless, we expect the demand to offer a positive effect on prices this week.
Flows – Neutral
We see Flows as a neutral driver for the report week. No upset conditions were reported that disrupted the movement of natural gas