January 2017 natural gas futures were sharply lower Thursday, Dec. 15, as weather outlooks trumped the first triple-digit storage withdrawal of the season. Although turning positive following the report of a storage build that was above expectations and well above historical averages, the contract failed to breach the pre-release high of $3.589/MMBtu. Instead, the downside was extended and the contract settled 10.6 cents lower on the day at $3.434/MMBtu.
The U.S. Energy Information Administration released its latest storage data at 10:30 a.m. ET, outlining a 147-Bcf withdrawal from the natural gas supply in the Lower 48 for the week to Dec. 9. The drawdown was above market consensus that called for a 132-Bcf withdrawal. It was well above the previous week's withdrawal of 42 Bcf, and the five-year average withdrawal of 79 Bcf and the 46-Bcf withdrawal reported for the same week in 2015.
The withdrawal brought the total U.S. working gas supply to 3,806 Bcf, turning the year-on-year surplus to a deficit of 50 Bcf and shrinking the year-on-five-year average storage surplus to 186 Bcf.
Cold weather and freeze-offs are expected to have driven the sharp supply reduction, but the market quickly digested the large storage draw in favor of the latest mid-range and long-range weather forecasts that suggest demand will wane and limit storage withdrawals going forward.
The six- to 10-day and eight- to 14-day weather maps from the National Oceanic and Atmospheric Administration show that above-average temperatures will engulf the eastern half of the country including the major heating Northeast and Midwest markets.
Longer range, the January-March three-month outlook from the NOAA shows above-average temperatures spanning the eastern quarter of the U.S. and spreading across the lower tier of the country.
Weather as forecast would pull back heating demand and allow more natural gas to remain in storage facilities, quieting market concerns for end-of-March natural gas inventories. Participants have of late been revising lower their end-of-season outlooks on the anticipation that storage withdrawals would continue exceeding historical averages and rapidly eat away at the natural gas supply.
Before the expected pull back in demand and return to smaller storage pulls, participants are expecting another large withdrawal when the EIA releases its next report covering the current week to Dec. 16.
An early survey of traders and analysts shows the expectation of a storage withdrawal spanning 177 Bcf to 204 Bcf. The pull will compare against a 101-Bcf five-year average withdrawal and the modest 33-Bcf withdrawal reported during the corresponding week in 2015.
In day-ahead trade, markets were mixed by varied load projections, easing of pipeline constraints and natural gas futures' seesaw trading.
Improved flow on pipelines in the Northeast helped to drive down the cost of next-day gas delivered to major hubs in the region. Transco Zone 6 NY gave back most of the prior-day gains to move to an index below $8.00, while Tetco-M3 deals were also sharply lower to an average near $4.00.
Elsewhere, Chicago hub values were more than 10 cents lower to an index near $3.65, as demand looks to soften. Conversely, Henry Hub trades were about 5 cents higher to an index atop $3.50, while Waha added less than 1 cent to an index near $3.40. Adding about 10 cents and 5 cents, respectively, deals at the SoCal Border averaged near $3.55 and PG&E Gate found its index near $3.70.
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