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US natural gas in storage enters its final week of withdrawal season as demand wanes

Highlights

Analysts expect 27 Bcf storage pull

Futures rise as producers cut back

  • Author
  • Brandon Evans    Kent Berthoud
  • Editor
  • Jason Lindquist
  • Commodity
  • Natural Gas Oil

New York — A survey of analysts expect a weaker-than-normal draw from working gas in storage last week, as only one more net pull likely remains before the switch to injections, with demand muted more than usual during the upcoming shoulder season.

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The US Energy Information Administration is expected to report a 27 Bcf withdrawal for the week ended March 20, according to a survey of analysts by S&P Global Platts.

Responses to the survey ranged from draws of 21 Bcf to 35 Bcf. The EIA plans to release its weekly storage report at 10:30 ET Thursday.

A 27 Bcf withdrawal would be much less than the 39 Bcf pulled in the corresponding week last year as well as the five-year average draw of 40 Bcf. A withdrawal within expectations would decrease stocks to 2.007 Tcf. The surplus to the five-year average would expand to 294 Bcf, and the overhang to 2019 would increase to 890 Bcf.

Although the draw appears to be more than last week's 9 Bcf pull, demand is expected to wane going forward.

Even as cooler weather across the western US pushes up residential and power burn demand, this Thursday's Weekly Natural Gas Storage Report is expected to announce a withdrawal about 15 Bcf lower than the five-year average, according to S&P Global Platts Analytics.

Early attempts to limit the spread of coronavirus through localized business closures and social-distancing measures have yet to significantly reduce natural gas demand. But that is likely to change in the coming weeks as measures become more aggressive. On the supply side, production gains out of Texas helped US production climb 0.7 Bcf/d, which is the largest weekly increase since last October.

Despite the recent momentum, US production faces long-term headwinds. With crude oil prices plummeting as a result of demand destruction from COVID-19, associated gas in the Permian will likely see significant declines at the end of this year that will provide support for prices at Henry Hub in 2021.

On the supply side, production gains out of Texas helped push up total US production by 0.7 Bcf/d, which is the largest weekly increase since last October. The recent production momentum is unlikely to last much longer. Associated gas production from the Permian basin faces significant headwinds for the remainder of the year as widespread demand destruction from the coronavirus outbreak keeps global oil prices underwater, according to Platts Analytics.

The NYMEX Henry Hub April contract rose 7 cents to $1.68/MMBtu during noon trading. Platts Analytics' supply-and-demand model currently expects a 24 Bcf draw for the week ending March 27, with the first net injection following the week after.