US gas storage volumes fall much less than expected as Henry Hub summer strip dips

Forecasts proved well off the mark as US natural gas in storage fell by only 98 Bcf for the week ended Feb. 26 following the week prior's monster draw of 338 Bcf, prompting a decline for the Henry Hub summer strip.

Storage inventories decreased by 98 Bcf to 1.845 Tcf for the week-ended Feb. 26, the US Energy Information Administration reported the morning of March 4.

The withdrawal was much weaker than the 137 Bcf draw expected by an S&P Global Platts survey of analysts. It was the largest miss by the storage survey in at least five years. By comparison, the survey has missed the EIA estimate by an average of 8 Bcf year to date. The closest figure of the survey to the EIA estimate was still well above the mark, calling for a 117 Bcf draw.

The extent of the disconnect between the EIA and the market is possibly the largest it has ever been in the shale era, likely because of the compounding uncertainties related to the recovery of both production and demand in the wake of the mid-February cold front that brought massive volatility to the US gas market, according to S&P Global Platts Analytics. The draw was closer to the five-year average of 81 Bcf, and, as a result, the deficit to the five-year average increased from 161 Bcf to 178 Bcf.

The EIA's South Central region posted a net change of zero for the week as the salt dome facilities added 9 Bcf, while the non-salt storage fields withdrew 9 Bcf. Over the past five years, the region has posted a net draw of 15 Bcf. Platts Analytics models pointed to a 28 Bcf draw for the region.

Natural gas prices searched for direction this week, with the April NYMEX oscillating between $2.70/MMBtu and $2.90/MMBtu. The NYMEX Henry Hub April contract slipped 7 cents to $2.75/MMBtu following the release of the weekly storage report. The summer strip, April through October, fell 6 cents to average $2.85/MMBtu.

A lack of intimidating cold in the March forecasts has kept market bulls at bay, while a constructive inventory backdrop has kept market bears from accelerating selling pressure. The market is clearly not reading too much into the report, as the large miss could be more a sign of transient issues post freeze-off events or simply data collection errors.

Platts Analytics supply and demand model currently forecasts a 67 Bcf withdrawal for the week ending March 5, which would measure 22 Bcf weaker than the five-year average, as the withdrawal season enters its final month.

Production for the week in progress was not impacted by the freeze-off event earlier in the month leading to a production gain of 5.4 Bcf/d week over week. Milder temperatures also reduced total demand by nearly 6 Bcf/d.