Bullish US natural gas storage report from EIA falls flat as NYMEX futures sell off

The US Energy Information Administration on Jan. 5 announced another massive drawdown from domestic natural gas storage in late December in a report that still underwhelmed market expectations.

US working gas storage dropped 221 Bcf in the week ended Dec. 30, according to the EIA's latest estimates, leaving domestic inventories at 2.891 Tcf – 208 Bcf. This is almost 7% below the five-year average and a brow-raising 308 Bcf, or about 9.5%, below the year-ago inventory level, EIA data showed.

By almost every measure, the EIA's report was a bullish one. The latest withdrawal estimate was more than twice the size of the five-year average storage pull of 98 Bcf and almost five-times larger compared with the year-ago drawdown of just 46 Bcf.

The latest storage report still undershot by 14 Bcf the consensus estimate from S&P Global Commodity Insights' weekly storage survey, which had predicted at 235 Bcf withdrawal from inventory in the week ended Dec. 30. This week's survey included a wide range of estimates, with some analysts predicting a significantly larger withdrawals -- one ranging as high as 295 Bcf.

While analysts had set the stage for a bullish report, NYMEX gas futures traders on Jan. 5 remained keyed in on the upcoming market impact of mild January weather. In morning trading, the February gas contract tumbled about 30 cents to $3.85/MMBtu ahead of the report's publication.

Immediately following the storage report's 10:30 am ET release, underwhelming storage data from the EIA piled on bearish sentiment, fueling another 10 cent drop in February gas prices to $3.75 – the prompt-month contract's lowest in 12 months, data from CME Group and S&P Global Commodity Insights showed.

Weather, supply

In late December, frigid temperatures across the US prompted a simultaneous spike in residential-commercial heating demand and a widespread freeze-off that curtailed gas production across multiple basins. Combined, the two factors were largely responsible for a more-than-430 Bcf drawdown from inventory over the past two reporting weeks.

After surging to over 75 Bcf/d on Dec. 23, US res-comm demand averaged a robust 49.9 Bcf/d during the week ended Dec. 30. Over the same seven-day period, US production pulled back to just 88.8 Bcf/d, marking a steep drop from mid-December levels at over 97.5 Bcf/d, S&P Global data showed.

In the days since, though, unseasonably mild US weather and a sharp drop in heating demand has been met by an unusually rapid rebound in domestic natural gas production.

During the current week ending Jan. 6, temperatures across much of the eastern US have warmed into the 50s Fahrenheit, with averages in the Midwest now trending into the upper 30s F. US heating demand, meanwhile, has pulled back to an average 34.4 Bcf/d. With domestic gas production now trending in the mid-96 Bcf/d range this week, the US supply-demand balance has lengthened considerably.

According to an updated projection from S&P Global's natural gas supply-demand model, the EIA's next withdrawal estimate for the week ending Jan. 6 could register as small as just 7 Bcf.