Key Points: Bloomberg scrapes show us that gas field production was lower by a bit more than 190 MMcf/d or nearly 1.3 Bcf for the week. Demand fell in all major categories (4.6 Bcf/d or 32.2 Bcf for the week), even as export market flows to Mexico grew by 0.04 Bcf/d. Canadian imports also rose by 0.08 Bcf/d.
Based on our analysis, we expect the EIA to report a 137 Bcf withdrawal for the report week ended Mar 1st (a pull on par with the five year average value of 130 Bcf and a consensus whisper expectation of 140 Bcf)
Natural gas markets have been volatile this winter. The colder than usual November month and the low natural gas inventories entering winter had caused the natural gas prices to reach $4.50/MMBtu. We note that, as of press time this week, the natural gas futures prices for April are staying below $3.00/MMBtu. However, the spot prices at Henry Hub have reached $4.25/MMBtu as of Monday this week. That's been a good run, and from this level, we think the forward outlook is more neutral than positive.
Lastly, by the end of winter’s heating season on March 31, we do not expect the winter exit storage to dip below 1145 Bcf given current expectations for LNG export flows and normal withdrawals for the remaining four weeks of winter.
Storage – Neutral
We estimate a storage withdrawal of 137 Bcf will be reported by EIA this week for the week ended Mar 1. This value is comparable to the five year average value of 130 Bcf. The classic withdrawal season is coming to an end on Mar 31 and if we see normal withdrawals over the entire period, we do not expect the inventory levels to fall below 1.1 Tcf. If severe weather last beyond March then it is possible that withdrawals continue after Mar 31 as well. But that situation appears unlikely as NOAA temperature forecasts already indicate a warming trend. All in, we see storage changes being a neutral driver for gas prices this week.
Weather – Neutral
Heating demand appears to have weakened given that we are close to the end of the winter season. Along with that, NOAA 8-14 day short term temperature forecasts into March 14 shows that warmer temperatures will prevail through the populous regions of Texas and areas east of the Mississippi River while temperatures should remain below normal over the Midwest and less-populous Rockies and low-gas demand centers on the West Coast. Accordingly, we see weather as being a neutral driver for gas prices this week.
Supply – Positive
Average dry gas production fell to 85.07 Bcf/d for the report week versus 85.26 Bcf/d in the prior week. We believe this decrease could be related to freezeoffs in W Texas. Winter weather that moved in over the weekend has been impacting performance in the Permian according to press reports citing freezeoffs. All in, we expect supply dynamics will offer positive pressure to this week’s price activity.
Demand – Neutral
Although demand fell in all major categories for the report week ended Mar 1, we infer from Bloomberg data that the demand is going to increase for the current week. For the first three days of the current week, demand from industrial, power generation and res/comm factors is higher by 10 Bcf/d when compared to the same period of the report week. We believe that the bearish decrease in demand for the report week should be seen in light of the bullish increase in demand for the current week. So we see a neutral effect from demand side drivers.
Flows – Positive
The upset conditions continue in the Pacific Northwest resulting from the outage at the Enbridge Westcoast natural gas pipeline system that shut off flows on one of the two pipeline paths supplying Washington State. Pricing agencies and media reports are showing that border region natural gas spot prices at Sumas, WA have reached $200/MMBtu. Prices quickly dropped back to $16/MMBtu but still remain highest in the country, and that is pulling gas from the Rockies and supporting gas prices in the Western U.S. and Canadian gas markets this week.
Trader Sentiment – Neutral
Despite the U.S. Federal Government shutdown being over for at least the next few weeks, it is expected that the data reports by the Commodity Futures Trading Commission (CFTC) will show only lagging data for the next few weeks until March 8th. We will resume our analytical coverage of CFTC data when the agency resumes reporting CFTC data that are contemporaneous with the other data in these weekly analyses. Accordingly, we expect the trader sentiment to be neutral for the report week.