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Average dry gas production stayed above 94 Bcf/d for the report week ending Nov 15. Demand from the residential and commercial sectors reached a high of 38 Bcf/d during the report week, an increase of 9.21 Bcf/d or 64.5 Bcf compared to the prior week. LNG net exports from the US also posted an average 6.89 Bcf. We expect US LNG send-out levels to reach 9 Bcf by the end of 2019 with the commissioning of terminals that are under construction.
Our analysis leads us to expect an 80 Bcf withdrawal level for this coming report week. Our expectation is 10 Bcf less than the current consensus of 90 Bcf and much higher than the 19 Bcf five-year average storage withdrawal.
Key Hub Price Call:
Henry Hub prices are maintaining the above $2.60 range as markets opened this week. Reflecting trends for a warmer winter as predicted by NOAA, temperatures are warming up as we move into November and December. We therefore expect Henry Hub prices to trend downward this week.
Gas Price Differentials:Based on current weather patterns, we expect western and central US gas price differentials (Permian, Houston Ship Channel, Los Angeles, Wyoming) to either stay flat or narrow relative to Henry Hub. Differentials on the East Coast of the US are forecasted to go up slightly as the cold front moves gradually in that direction.
Storage - Positive
We estimate a storage withdrawal of 80 Bcf will be reported by EIA this week for the week ended Nov 15. This is much higher than the 19 Bcf five-year average storage withdrawal, indicating that the onset of winter has resulted in lower than average temperatures. EIA reported a 3 Bcf build for the prior week, mostly likely the last injection for the winter of 2019-2020. Inventory levels are at 3,732 Bcf, just 2 Bcf above five-year average value of 3,730 Bcf and almost 500 Bcf higher than last year. All in, we see storage changes as a strong positive driver for gas prices this week.
Weather – Negative
Weather systems across Lower 48 are warming up and are expected to result in temperatures that are above normal for the rest of November and possibly December, too. The NOAA forecasts for the next 6-10 days show a warm ridge in the central US early in the week that will then move into the South and East toward the weekend. Accordingly, we expect weather to be a negative driver for gas price activity in short term.
Supply – Negative
Production has been on an upward trend for the past three weeks, and Stratas Advisors expects the pattern to continue in the short term. Average weekly production increased marginally by 0.31 Bcf/d during the report week. All in, we see supply is exerting a negative effect on prices.
Demand – Negative
Residential and commercial demand went up by 9.16 Bcf/d during the report week to reach an average of 38 Bcf/d. This represents a 64 Bcf week-on-week increase. We can expect the demand to stabilize over the current week because of warming temperatures. Demand has decreased by 2.25 Bcf/d for the first three days of current week when compared to the same period of the report week. Therefore, we expect demand to have a negative effect on prices in the short term.
Flows – Positive
There have been no reported disruptions to natural gas pipelines. LNG flows into terminals posted a decrease from the prior week by 0.34 Bcf/d. This could be because of the combined effect of the onset of winter and LNG put away in storage at export terminal sites. We see flows having a minor positive effect on gas prices this week.
Trader Sentiment – Neutral
The CFTC's 11/15/2019 commitment of traders report for NYMEX natural gas futures and options showed that reportable financial positions (managed money and other) on 11/12/2019 were 121,003 net short while reportable commercial operator positions came in at a 87,559 net long position. Total open interest was reported for this week at 1,194,048 and was down 19,301 lots from last week's reported 1,213,349 level. Sequentially, commercial operators this reporting week were cutting longs by 4,704 while adding to shorts by 12,559. Financial speculators cut shorts and cut longs for the week (-23,514 vs -9,760, respectively). We see trader sentiment as neutral this week.