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Market imbalance anchored gas futures throughout withdrawal season

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Market imbalance anchored gas futures throughout withdrawal season

Prompt-monthnatural gas futures were weighed down throughout the duration of the 2015-2016titular withdrawal season amid a persistent supply/demand imbalance, as asluggish pace of storage erosion driven by subdued weather-related demandcombined with ongoing strong production.

Priceaction for the front-month natural gas futures contract from the onset of the traditionalwithdrawal season Nov. 1, 2015, to the season's close March 31 were caughtbetween a high of $2.472/MMBtu recorded Jan. 8 and a low of $1.639/MMBtu postedMarch 3. This range compares to the year-ago ceiling over the same period of$4.489/MMBtu reached Nov. 20, 2014, and a floor of $2.579/MMBtu notched Feb. 6,2015.

Duringthis time, the month-ahead gas offering breached several key support levels andreached multi-year lows, as inventories that began the withdrawal season laterthan usual and at a record-high level eroded at a lackluster pace to remainabove historical averages through the close of the season and ultimately reachthe highest end-of-March level on record.

Endingthe injection season at a record of 4,009 Bcf during the week ended Nov. 20,2015, natural gas stocks only began to draw lower three weeks past thetraditional start of the withdrawal season during the week to Nov. 27, 2015,and ultimately eroded to 2,480 Bcf at the season's close in the week to April1, exceeding the previous end-of-season storage level of 2,473 Bcf set on March31, 2012.

Storageoverhangs that were at 554 Bcf against the year-ago level and 252 Bcf versusthe five-year average before the withdrawal season kicked off widened to 1,008Bcf and 874 Bcf, respectively, in the week ended April 1, even as stockssteadily drew lower.

Inits "Natural Gas WeeklyUpdate" released March 3, the U.S. Energy InformationAdministration said that natural gas inventories have managed to remainelevated relative to seasonal norms due to a warm winter and ongoing robust production. Agencydata show thatheating degree-days throughout the span of the winter heating season thatcoincided with the duration of withdrawal season are 17% below normal, astemperatures trended warmer than normal in 19 out of the 22 weeks comprisingthe season.

Residential-sectordemand that is primarily used for heating during the winter averaged at about21.0 Bcf/d over the course of the 2015-2016 winter heating season, or belowboth the 24.9 Bcf/d prior-year average and the 23.5 Bcf/d five-year average.

Meanwhile,natural gas production has remained robust, despite a significantly diminishedrig count. Although the U.S. rig count has been mired at record lows sinceearly March to stand at a total of 443 during the week ended April 8, totalU.S. dry gas production that was 5.3% higher year on year in 2015 is expectedto remain firm by notching a growth, albeit slowed down, of 0.7% in 2016 thatis anticipated to accelerate to 2.1% in 2017.

Strongproduction despite a record-low rig count and a lack of demand for the supplyhave conspired to limit the amount of natural gas drawn from undergroundstorage facilities, keeping supply robust throughout the withdrawal season.

Outof the 22 weeks of the titular withdrawal season, weekly changes to inventorieshave compared bearishly against the five-year average for 17 weeks, of whichfive saw aberrant storage builds. Only seven of the weekly stock draws were inthe triple-digits, with only two of those besting than the five-year average,including the 211-Bcf withdrawal for the week to Jan. 22 that was the largestpull of the season.

Netwithdrawals from underground storage facilities from the week ended Nov. 6,2015, through the week ended April 1 totaled 1,451 Bcf, well below the2,086-Bcf net drawdown during the same 22-week period in the previous year andthe 2,176-Bcf average net pull over the last five years.

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Currentlysitting at hefty levels, inventories are poised to extend price pressurethrough the spring shoulder season and to pose a threat to storage capacitylimits into the fall season, but some analysts that demand and producerresponses to diminished prices could alleviate these concerns.

Marketprices and included industry data are current as of the time of publication andare subject to change. For more detailed market data, including power andnatural gasindex prices, as well as forwards and futures, visitour Commodities Pages. To view detailed EIA Weekly Natural Gas Storage data, goto our NaturalGas Storage Page.