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March natural gas fights off buying after larger storage pull, ends negative

March natural gas futures fought off buying triggered by the report of a larger-than-expected withdrawal from natural gas inventories for the week to Feb. 9, ending the Thursday, Feb. 15, trading session in shallow negative territory amid a breakdown in support. The contract settled 0.7 cent lower at $2.580/MMBtu.

The U.S. Energy Information Administration storage report for the week to Feb. 9 outlined a 194-Bcf withdrawal from stocks that was above market expectations calling for a 180-Bcf pull as well as the year-ago drawdown of 120 Bcf and the five-year-average pull of 154 Bcf. Inventories now sit at 1,884 Bcf, or 577 Bcf below the year-ago level and 433 Bcf below the five-year average storage level of 2,317 Bcf. Cold weather during the review week supported demand and drove the larger storage withdrawal that continued the step up in weekly storage erosion after a 119-Bcf pull the previous week and the 99-Bcf withdrawal reported for the week to Jan. 26.

The ramped-up pace of storage erosion is of some concern as market participants look to an end-of-withdrawal season inventory trailing the closely watched five-year-average level. Storage levels are on pace to end March at their lowest level since 2014. While ending the 2017 withdrawal season at a 5% surplus to the five-year average, now supply is 16% below the five-year average after a cold January, Barclays analysts said in a Feb. 8 note.

Weather outlooks support declining demand and a return to a slower pace of storage erosion in the weeks ahead. The six- to 10-day weather forecast from the National Weather Service shows above-average temperatures across nearly the entire eastern half of the country and a band of normal temperatures in the central U.S. and Southwest separates the above-average temperatures from the below-average readings that dominate in the western half of the country. In the eight- to 10-day outlook, above-average temperatures expand to include the East and a larger portion of the central U.S., shifting the band of normal temperatures toward the west-central U.S. and shrinking the area of below-average temperatures in the West.

Milder weather that comes with the seasonal changes from winter to spring should cut into heating demand and leave more natural gas in storage facilities.

The National Oceanic and Atmospheric Administration's latest temperature outlook issued Feb. 15 indicates there is a 40%-or-better chance that above-normal temperatures will prevail across most of the Northeast, the Southeast, Texas and parts of the West Coast from March through May. Southern Texas and much of the Southwest have the highest chance of seeing above-average temperatures through the period. The Midwest, regions of the Northwest and the north-central U.S. have the greatest chance of experiencing average to below-normal conditions from February to April.

At the same time, natural gas production is forecast to climb. The EIA expects that shale output of natural gas will have grown for 12 consecutive months in March, with gas output coming in 19.0% above the same month a year earlier to set a new record.

Barclays expects supply to climb to 76.5 Bcf/d in 2018 from 71.9 Bcf/d in 2017.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas index prices, as well as forwards and futures, visit our Commodities pages.