What’s Affecting Gas Prices? (Week of Dec. 17)

Key Points: 

Bloomberg scrapes imply gas field production was 550 million cubic feet per day (MMcf/d) lower for report week ended Dec. 13 compared to the prior week, but imports from Canada increased by 0.72 billion cubic feet (Bcf) while Mexico exports also increased by 0.54 Bcf. Demand also rose marginally in residential, commercial, power generation and industrial sector. LNG demand remains robust. 

Our analysis leads us to expect a 90 Bcf withdrawal level for this coming report week. Our expectation is 3 Bcf higher than the current consensus of 87 Bcf and almost 60% of the 155 Bcf five-year average storage withdrawal. 

Key Hub Price Call: 

Henry Hub prices rose to $2.35 per million British thermal unit because of relatively tighter supply demand balance compared to previous weeks. Cold shots across the U.S. could be cause of decrease in production and increase in winter based heating demand.

Gas Price Differentials:

The cold front tracking across the Midwest and Central U.S. is expected to move into the East and Northeast later in the week. Differentials in the East and Northeast are expected to widen as these regional prices would go up.

Storage: Negative

We estimate a storage withdrawal of 90 Bcf will be reported by EIA for the week ended Dec. 13.  That's far below the five year average 155 Bcf draw.  Normally by mid-December, we see stronger pulls from natural gas inventory. Initial indications suggest little likelihood of increasing withdrawals through the end of December. All in, we see the storage changes as a negative driver for gas prices this week.

Weather: Neutral

Cold shots across the Midwest and Central U.S. will lead to strong demand the next few days with lows of -10s to 20s. The cold front with rain and snow will reach the East later in the week. Reinforcing cool air will continue across the Northeast late in the week with highs of 20s to 40s, while the rest of the country is expected to warm above normal w/highs of 40s to 70s. Accordingly, weather is a neutral factor this week. 

Supply: Positive

Average field supply is likely to show a week-over-week decline of more than 0.55 Bcf/d but rising seasonal Canadian imports added 0.1 Bcf/d of supply into the market. Overall, we see Supply as being a weak positive this week.

Demand: Positive

We see a positive effect from structural demand side drivers for the report week. Gas-fired power generation has increased by 1.07 Bcf/d or 7.47 Bcf for the report week. From the residential and commercial sector, weekly average demand was 36.90 Bcf/d, albeit much lower than the winter highs of 50 Bcf/d. Unless the temperatures lower across the country and that too in heavily populated areas, demand is bound to stay flat at these levels. 

Flows: Positive

LNG flows increased by 0.5 Bcf/d or 3.5 Bcf. The increase could be attributed to start of Freeport LNG terminal Train 1 during the report week. Flows are a positive factor for this week’s gas prices. 

Trader Sentiment: Positive

Despite mild weather outlook, market participants are increasing the futures prices. We see trader sentiment as positive this week. The Commodity Futures Trading Commission's Dec. 13 commitment of traders report for Nymex natural gas futures and options showed that reportable financial positions (Managed Money and Other) on Dec. 10 were 220,548 net short while reportable commercial operator positions came in with a 183,877 net long position. Total open interest was reported for this week at 1,335,962 and was down 2,243 lots from last week's reported 1,338,205 level. Sequentially, commercial operators this reporting week were cutting longs by 16,587 while cutting shorts by 11,559. Financial speculators added shorts and added longs for the week (15,082 vs. 17,710, respectively).