A storage report that outlined a larger-than-anticipated and better-than-average withdrawal from natural gas inventories for the week to Jan. 13 sparked a sharp gain in natural gas futures on Thursday, Jan. 19. February natural gas futures climbed to a $3.404/MMBtu intraday high and settled 6.6 cents higher at $3.368/MMBtu.
The U.S. Energy Information Administration reported that 243 Bcf was withdrawn from natural gas supplies in the Lower 48, beating expectations calling for a 236-Bcf drawdown from stocks. This was the largest draw of the season to date, exceeding the 237-Bcf decline in the week ended Dec. 23, 2016, and was above both the 175-Bcf withdrawal reported for the same week in 2016 and the five-year average withdrawal of 170 Bcf.
The total working gas supply sits at 2,917 Bcf, or 431 Bcf below the year-ago level and 77 Bcf below the five-year average storage level of 2,994 Bcf.
The large storage pull came during a week that saw 6.0% fewer heating degree days compared to the same week last year, and 10.6% fewer than normal for the week, prompting some speculation regarding the reason behind the unexpectedly large withdrawal.
HFI analysts, offering an explanation for the upside storage miss, said that there is a structural imbalance of 3.5 Bcf/d to 4 Bcf/d. The analysts warned that, "Natural gas supplies need to either increase materially or demand needs to go down in order for the structural imbalance to close."
Natural gas demand is expected to increase further by 2 Bcf/d over the next several months, HFI said. "If natural gas production does not rebound to the 74 Bcf/d we forecasted, then the structural imbalance by May will have widened to 6 Bcf/d. This is not practical," the analysts said.
Despite the large storage pull, the market proved unable to sustain the day's more substantial gains.
"While this report was more supportive than anticipated and does go some way toward showing a somewhat tighter supply/demand balance, smaller and somewhat bearish storage withdrawals are still likely over the next two reports, limiting the upward price potential," Citi Futures analyst Tim Evans said.
The current week to Jan. 20 saw volatile weather, but with mild conditions in the major heat-consuming Northeast and Midwest markets allowing for a probable pullback in natural gas withdrawals in the EIA's next report due out Jan. 26.
The six- to 10-day weather outlook suggests another period of lackluster demand, offering the possibility of yet another modest withdrawal from stocks in the near term. But longer range, a possible demand boost is suggested.
The eight- to 14-day projection shows the above-average temperatures that blanket the entire eastern half of the country in the near term should recede to only the Northeast and a portion of the Midwest. Average temperatures span from a portion of the Mid-Atlantic into the north-central U.S. and below-average temperatures grip the Southeast, a large portion of the central U.S. and the majority of the West.
Day-ahead trade followed declining load projections amid milder weather, with prices at major hubs across the U.S. extending lower.
Transco Zone 6 NY traded more than 5 cents lower to an index near $3.10, Tetco-M3 gave back a similar amount to an index below $3.10, Henry Hub trades softened nearly 5 cents to an index around $3.20, Waha shed more than 5 cents to an index near $3.05 and Chicago slipped nearly 10 cents to an index below $3.15. SoCal Border trades were nearly 10 cents lower to an index near $3.20 and PG&E Gate slipped more than 5 cents to an index near $3.55.
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