Analysts see US gas storage surplus narrowing in bullish EIA report

Following a relatively bearish start to the US winter heating season, market analysts now expect that colder weather in late November likely prompted the first major drawdown from natural gas storage stocks.

In its upcoming Dec. 7 inventory report, the US Energy Information Administration is expected to announce a 105-Bcf withdrawal from US gas storage in the week prior, according to the latest survey of market analysts from S&P Global Commodity Insights. Responses to this week’s survey were reported in a wide range from about 80 Bcf to as much as 125 Bcf.
In the week ended Dec. 1, US gas market fundamentals tightened as temperatures plunged across the Northeast and Midwest, fueling a surge in gas demand, data from S&P Global showed.

In the final week of November, US residential-commercial gas demand climbed by more than 8.1 Bcf/d from the week prior to average 38.8 Bcf/d, or its highest level since late February. Colder weather also spurred a smaller gain in power demand, which was up nearly 4.2 Bcf/d on the week to an average 34.1 Bcf/d in the seven days ended Dec. 1.

On the supply side, a production drop of about 900 MMcf/d was entirely offset by a net gain in import-export flows, which turned positive during the week. On balance, the US gas market tightened in the week to Dec. 1 by nearly 13.9 Bcf/d, data from S&P Global showed.

According to analysts’ consensus projection, the tighter market balance should translate to a 105-Bcf withdrawal from storage in the final week of November, which compares with a 10-Bcf build in the week prior. By historical standards, a 105-Bcf withdrawal from inventory would look relatively bullish compared with the five-year average pull of 48 Bcf and the year-ago draw of 30 Bcf, US Energy Information Administration data showed.

Assuming that the analysts’ consensus withdrawal estimate of 105 Bcf is accurate, US inventory levels would fall to 3.731 Tcf. The surplus to the five-year average would narrow to 246 Bcf, or about 7%, above average, while the surplus to 2022 would also tighten to 266 Bcf, or almost 8%, above the year-ago level.

NYMEX
The NYMEX January gas futures contract climbed by just 1-2 cents on the day to trade around $2.70/MMBtu Dec. 5, CME Group data showed. After reaching an early November high at nearly $3.60/MMBtu, prompt-month futures have come under steady pressure in the weeks since amid elusive winter demand, lengthening supply and a growing storage surplus.

“Right now, they’re just pricing in a glut because of record production—and they don’t see that easing off,” Phil Flynn, senior account executive at Price Futures Group, said Dec. 5. “Temperatures just aren’t as cold as they feared and [it seems like] the bearish argument is just getting louder and louder.”

In the week that will end Dec. 8, total US gas demand is already down an average 10 Bcf/d from the week prior. Updated weather forecasts and demand models are predicting more of the same through Dec. 8. With US gas demand projected to climb only marginally through the end of the week, EIA is likely to record a much smaller draw from storage for the week. According to S&P Global’s natural gas supply-demand model, EIA is likely to post a withdrawal of just 69 Bcf for the week that will end Dec. 8. If accurate, the predicted drawdown would register nearly 15% smaller than the five-year average pull of 81 Bcf, but still about 50% larger than the year-ago pull 46 Bcf, EIA data showed.
Source: Platts