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More bearish news on US gas storage expected from EIA this week

Highlights

84 Bcf withdrawal projected, week ended Jan. 20

NYMEX March, April futures fall to upper $2s

Mild weather forecast through current week

  • Author
  • J Robinson
  • Editor
  • Richard Rubin
  • Commodity
  • Natural Gas

Analysts are anticipating another bearish natural gas storage report from the US Energy Information Administration this week as mild weather and weak heating demand continue to underwhelm the gas futures market.

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According to S&P Global Commodity Insights' latest gas storage survey, the EIA will likely report an 84 Bcf withdrawal from inventory for the week ended Jan. 20. Most estimates in this week's survey were reported in a narrower from 70-90 Bcf, excluding several high-side outliers.

The consensus 84 Bcf withdrawal from US inventory expected by analysts would pale in comparison with a drawdown of 217 Bcf reported in the corresponding week last year. It would also register less than half the size of the five-year average withdrawal at 185 Bcf, data from EIA shows.

If accurate, the anticipated pull on storage would drop US stocks to 2.736 Tcf, widening the storage surplus to 135 Bcf, or more than 5%, above the five-year average. The undersized drawdown would also push domestic inventories to a surplus of 114 Bcf, or 4%, above the year-ago level.

With another bearish storage report expected from the EIA this week, and more mild temperatures on the horizon through the weekend, the NYMEX Henry Hub gas futures market has recently hit lows not seen since mid-2021.

NYMEX

On Jan. 24, the February futures contract was down about 15-20 cents on the day to trade in the mid-$3.20s/MMBtu, data from CME Group showed. After settling at nearly $7 in mid-December, prompt-month futures prices have fallen by more than 50% over the past six weeks as mild weather and weak supply-demand fundamentals reset the US gas market outlook.

"A lot of people are very bearish -- and what a flip-flop from where we were a few months ago when everybody was really bullish," said Phil Flynn, senior account executive at Price Futures Group, by telephone Jan. 24. "The bears really had everything all their direction, you know – the combination of the warmer-than-normal temperatures, better than expected production levels ... along with the Freeport shutdown. It really was a sea change," he said.

Beyond February, the futures market is still pricing-in steep backwardation with the March and April contracts recently trading down to the upper-$2s/MMBtu, data from S&P Global Commodity Insights shows.

Outlook

Following nearly a month of mild US temperatures, below-average heating demand and bearish storage reports, colder, more winter like weather is finally on the horizon in early February. According to the National Weather Service, nearly all of the Western US and Upper idcontinent are facing an outsized risk for below-average temperatures in the six- to 10-day forecast. The agency's eight- to 14-day forecast, while less certain, shows the approaching cold front spreading across the Northeast, leaving just a handful of states from Florida to the Carolinas with at risk for above-average temperatures in early February.

For the week ending Jan. 26, S&P Global's gas supply-demand model is projecting a slightly larger, but still below-average withdrawal of 137 Bcf from US inventory. Looking into early February, the currently modeling looks more bullish, with early estimates showing a possibly drawdown of almost 180 Bcf.