Key Points: With last week’s cold weather interfering with normal operations, field production dropped by a good margin of 8.5 Bcf week on week or to average of 83.88 Bcf/d for the report week ended Mar 8. Canadian imports rose by 0.64 Bcf/d partly offsetting the decline in production. The same cold weather pushed up net demand sharply by 8.63 Bcf/d w-o-w. Imports by Mexico stayed rather flat at just above 5 Bcf/d.
Our analysis leads us to expect a 215 Bcf withdrawal will be reported by EIA this Thursday, almost double the 118 Bcf five year average withdraw and higher than the current 210 Bcf consensus whisper expectation.
Late season cold is resulting in above normal withdrawals in March. Despite larger than expected withdrawals and strong demand, Henry Hub spot prices have settled comfortably below $3.00/MMBtu. Our expectation of end of winter storage remains at 1100 Bcf. Unless winter lasts beyond March and supra-normal withdrawals continue for the remaining few weeks of the classically defined winter season (ending March 31), we believe that the 2018/19 winter heating season in the U.S. will end with gas working storage levels above 1 Tcf.
Storage – Positive
We estimate a storage withdrawal of 215 Bcf will be reported by EIA this week for the week ended Mar 8. EIA reported a 149 Bcf withdrawal for the prior week resulting in 1390 Bcf left in stocks, which is 25% lower than the five year average for the same week. All in, we see storage changes as a positive driver for gas prices this week.
Weather – Positive
The NOAA 8-14 day short term temperature forecasts predict colder than average weather for much of Lower 48. Only the West Coast has warmer than normal seasonal temperatures over the period. The more important consuming/producing regions of Texas and Gulf Coast are forecasted to have lower than normal temperature conditions. We see weather as being a positive driver this week.
Supply – Positive
Field supply has dropped by 1.21 Bcf/d week-on-week. The supply reduction is likely because of freezeoffs amid subnormal temperatures in producing regions. However, there have been no reported freezeoffs for the report week. All together, we see supply as exerting positive pressure to prices this week.
Demand – Neutral
We see a neutral effect from demand side drivers this week. The demand for natural gas in power generation and industrial sector showed an upward trend for the current week. The biggest rise in demand has been from the residential and commercial sector that equals 45 Bcf from previous week. But week-to-date averages in the major demand sectors we track are showing a drop from the previous week’s averages. So Demand is expected to drop into the coming week which underpins our neutral view when combined with a decent growth in demand for last week.
Flows - Neutral
An avalanche along I70 highway has ruptured a natural gas line close to Denver in Colorado. The effect of the rupture is expected to be contained within a small area. Therefore, we expect flows to be a neutral driver this week. Given what we believe are extreme bottlenecks in the Permian basin, home to the Waha hub, the prices there in the most recent period crashed to below $1.00/MMBtu as a result of poor outflow capacity. This is not necessarily a new condition. Rather it is one which we anticipate will last for months until new pipeline capacity out of the Permian due in 3Q and 4Q 2019 can enable more flow to more markets.
Trader Sentiment – Negative
The market is looking bearish for natural gas prices. We expect Henry Hub prices to drop below the current $2.87/MMBtu level. The CFTC's 3/8/2019 commitment of traders report for NYMEX natural gas futures and options showed that reportable financial positions (Managed Money and Other) on 3/5/2019 were 47,449 net short while reportable commercial operator positions came in with a 11,161 net long position. This week we see trader sentiment as negative.