US gas storage withdrawal slightly outpaces consensus as NYMEX stumbles

The US Energy Information Administration on March 2 estimated a slightly-larger-than expected drawdown from US natural gas storage last week in a report that still did little to ease an overall bearish sentiment in the domestic gas market.

US inventories dropped 81 Bcf in the week ended Feb. 24, according to the EIA's latest storage estimate. The withdrawal remained well short of historical averages. The US gas market has only recently showed signs of rebounding from a deep price decline over the past few months amid mild winter weather and correspondingly weak demand.

Last week's withdrawal surpassed the market expectation of a 79 Bcf pull on domestic stocks, as predicted by S&P Global Commodity Insights' weekly US gas storage survey. But the EIA's March 2 storage report still showed a widening surplus for the seventh time in eight consecutive weeks. The agency's estimated withdrawal also paled in comparison to the five-year average storage pull of 134 Bcf for the corresponding week and the year-ago drawdown of 137 Bcf.

The EIA's report now leaves US stocks at 2.114 Tcf -- a 342 Bcf, or about 19%, surplus to the five year-average. Compared with levels a year earlier, stocks are now at a remarkable 451 Bcf, or roughly 27%, surplus to 2022, the agency data showed.

NYMEX Henry Hub prompt-month futures sank 8-10 cents following the report's 10:30 a.m. ET release before rebounding to trade in the upper-$2.70/MMBtu range, intraday exchange data from CME Group showed.

Still, traders have been somewhat more bullish this week, with the April 2023 futures contract rallying in its debut prompt month spot Feb. 27, after bottoming out in the low $2/MMBtu range as recently as Feb. 21.

"The market is stumbling a little bit on the recovery, probably to wait to see the next catalyst, whether it be weather or progress on exports," Phil Flynn, senior account executive at Price Futures Group, said Feb. 28. "One of the things the market is going to be looking at in the coming weeks is US rig counts to see if there's going to be an impact on production."

Progress toward resuming normal operations at the Freeport LNG export facility in Texas after an eight-month-long outage at the terminal has provided some support to the domestic price sentiment. Feedgas demand at Freeport has yet to reach the more than 2 Bcf/d that the facility can take when operating fully. But the February return of Freeport to producing LNG and exporting cargoes has given US gas futures traders hope that demand from the facility could help balance a series of other bearish factors that have led to the mounting storage inventories.

Freeport was scheduled to receive more than 1.2 Bcf/d of feedgas March 2, based on nominations for the morning cycle that could later be revised, S&P Global data showed. The terminal received more than 1.1 Bcf/d March 1, which marked the highest volume of daily feedgas deliveries to Freeport since it was forced to shut down after a fire at the facility in June 2022.

Weather forecasts have also looked to keep demand afloat heading into the final weeks of winter. Short-term forecasts from the National Weather Service showed a higher probability of colder-than-normal temperatures across much of the Lower 48 into mid-March, particularly in central US.

Still, S&P Global's latest supply-demand model estimate is already calling for a smaller withdrawal from US inventory of just 77 Bcf for the week that will end March 3, continuing to weigh on the market's bearish outlook. If accurate, the current-week withdrawal would again widen the storage surplus to the five-year average. Inventories are likely to reach more than 20% above the historical five-year average by the middle of March, S&P Global natural gas analyst Eric Brooks said in a Feb. 28 report.

"But beyond the next two weeks, should colder weather remain on the cards, some of that surplus could get chipped away," Brooks said.