Analysts see US gas storage surplus widening again as mild weather persists

Market analysts are looking for another bearish gas storage report from the US Energy Information Administration March 14 as mild weather and weak demand continue to pad domestic inventories.

According to the latest gas storage survey from S&P Global Commodity Insights, the EIA is expected to announce a withdrawal of just 3 Bcf from US inventory for the week ended March 8.

With the transition from winter to spring beginning earlier than usual this year, nearly half of those surveyed said they expect the agency to announce a net injection for the week. Responses to the survey ranged from a 25 Bcf withdrawal to as much as a 10 Bcf injection for the week to March 8.

By historical standards, the EIA’s upcoming report will likely be exceptionally bearish. Over the past five years, the EIA has reported an average withdrawal of 87 Bcf from US inventory in the first week of March. In the corresponding week last year, the agency reported a withdrawal of 65 Bcf, EIA data showed.

Assuming the S&P Global survey prediction is accurate, the US gas storage surplus would expand for a sixth consecutive week, ballooning to 635 Bcf, or nearly 38%, above the five-year average. The surplus to 2023 would also widen to 342 Bcf, or more than 17%, above the year-ago level for the corresponding week.

Fundamentals

In the week to March 8, total US gas demand dropped by nearly 10 Bcf/d, led principally by weaker burns from the residential-commercial sector, along with smaller declines in power and industrial demand.

US gas supply also contracted during the week thanks to a 1 Bcf/d drop in dry gas production and a roughly 850 MMcf/d decline in supply imported from Canada. On balance, the US gas market still lengthened by almost 8 Bcf/d, data from S&P Global showed.

NYMEX

On the NYMEX, Henry Hub prompt-month gas futures prices have continued to falter in recent trading amid a bearish outlook heading into the spring shoulder season.

On March 12, the April gas contract was down another 6-7 cents on the day to trade around $1.70/MMBtu. After rolling to the front-month contract, April futures briefly climbed to around $1.95 earlier this month amid expectations that colder weather would help to tighten the US gas market. Over the past week, though, April prices have moved steadily lower.

“With the rig count falling, you assume we’re trying to bottom,” said Phil Flynn, senior account executive at the Price Futures Group by telephone March 12. “The back end of the curve is a safe place to be, but the front end of the curve is going to be like the wild west. We could fall another 30 cents or rally another 30 cents just based on production cuts or weather.”

Outlook

Assuming the S&P Global gas storage survey prediction for a 3 Bcf withdrawal is accurate, the aggregate US inventory level would fall just narrowly to a projected 2.331 Tcf as of the week ended March 8.

As mild weather persists, US gas demand is expected to remain near, or just above, recent lows through mid-March. For the week to March 15, S&P Global’s gas supply-demand model is already projecting another bearish report from the EIA, with the agency expected to announce an injection of 9 Bcf. The predicted inventory change would compare with a five-year average withdrawal of 42 Bcf and an even larger year-ago drawdown of 68 Bcf, both reported in the corresponding week, data fromthe EIA showed.
Source: Platts