Bloomberg scrapes imply gas field production was 550 MMcf/d lower for report week ended Dec 13 compared to the prior week, but imports from Canada increased by 0.72 Bcf while Mexico exports also increased by 0.54 Bcf. Demand also rose marginally in residential, commercial, power generation and industrial sector. LNG demand remains robust.
Our analysis leads us to expect a 90 Bcf withdrawal level for this coming report week. Our expectation is 3 Bcf higher than the current consensus of 87 Bcf and almost 60% of the 155 Bcf five-year average storage withdrawal.
Key Hub Price Call:
Henry Hub prices rose to $2.35/MMBtu because of relatively tighter supply demand balance compared to previous weeks. Cold shots across the United States could be cause of decrease in production and increase in winter based heating demand.
Gas Price Differentials:
The cold front tracking across the Midwest and Central US is expected to move into the East and Northeast later in the week. Differentials in the East and Northeast are expected to widen as these regional prices would go up.
Storage - Negative
We estimate a storage withdrawal of 90 bcf will be reported by EIA for the week ended Dec 13, 2019. That's far below the 5 year average 155 bcf draw. Normally by mid-December, we see stronger pulls from natural gas inventory. Initial indications suggest little likelihood of increasing withdrawals through the end of December. All in, we see the storage changes as a negative driver for gas prices this week.
Weather – Neutral
Cold shots across the Midwest and Central US will lead to strong demand the next few days w/lows of -10s to 20s. The cold front with rain and snow will reach the East later in the week. Reinforcing cool air will continue across the Northeast late in the week w/highs of 20s to 40s, while the rest of the country is expected to warm above normal w/highs of 40s to 70s. Accordingly, weather is a neutral factor this week.
Supply – Positive
Average field supply is likely to show a w-o-w decline of more than 0.55 Bcf/d but rising seasonal Canadian imports added 0.1 Bcf/d of supply into the market. Overall, we see Supply as being a weak positive this week.
Demand – Positive
We see a positive effect from structural demand side drivers for the report week. Gas-fired power generation has increased by 1.07 Bcf/d or 7.47 Bcf for the report week. From the residential and commercial sector, weekly average demand was 36.90 Bcf/d, albeit much lower than the winter highs of 50 Bcf/d. Unless the temperatures lower across the country and that too in heavily populated areas, demand is bound to stay flat at these levels.
Flows – Positive
LNG flows increased by 0.5 Bcf/d or 3.5 Bcf. The increase could be attributed to start of Freeport LNG terminal Train 1 during the report week. Flows are a positive factor for this week’s gas prices.
Trader Sentiment – Positive
Despite mild weather outlook, market participants are increasing the futures prices. We see trader sentiment as positive this week. The CFTC's 12/13/2019 commitment of traders report for NYMEX natural gas futures and options showed that reportable financial positions (Managed Money and Other) on 12/10/2019 were 220,548 net short while reportable commercial operator positions came in with a 183,877 net long position. Total open interest was reported for this week at 1,335,962 and was down 2,243 lots from last week's reported 1,338,205 level. Sequentially, commercial operators this reporting week were cutting longs by 16,587 while cutting shorts by 11,559. Financial speculators added shorts and added longs for the week (15,082 vs 17,710, respectively).