US natural gas inventories decreased by 52 Bcf for the week ending March 5, compared with the five-year (2016–2020) average net withdrawal of 131 Bcf. Working gas stocks total 1,793 Bcf, which are 141 Bcf lower than the five-year average and 257 Bcf lower than last year at this time. Analysts’ expectations had been for a withdrawal of 78 Bcf. Slightly better withdrawal numbers are likely to continue for the next week as temperatures become more moderate across most of the country. Still, gas inventories are more than 12% off last year and trending below the five-year average. Daily production has resumed to pre-winter storm levels but remains behind 2020 and 2019 levels despite oil maintaining price levels above $65/barrel. It seems that producers are not being seduced by higher than anticipated oil prices and ramping up oil and associated gas production.
Our models now indicate that we may exit heating season with somewhere between 1.5 – 1.6 Tcf of gas in storage. With at least three more storage withdrawals expected this heating season, the market will begin to turn its attention to the summer injection season, which typically runs from the beginning of April to the end of October. Weekly storage reporting for last year’s injection season saw an average of 66 Bcf per week. This was a significant drop from the previous year’s average of 80 Bcf per week. Early weather forecasts call for a warmer than normal summer for most of the USA, which will put pressure on EIA’s forecast of 3.7 Tcf for the end of injection season. Our previous report noted how the potential for a sub-optimal storage level for the 2021/2022 heating season could have a “domino” effect on future inventory levels, and current NYMEX futures prices have not yet factored in this potential scenario. If this scenario does, in fact, materialize, increased pricing volatility is expected to follow. In summary, the days of buying NYMEX futures contracts at sub-$3 price levels may be numbered.
End users with exposure to natural gas prices for the next few years need to practice diligent and prudent risk management. With exceptional value currently seen in the deferred years, end-users need to be FORWARD thinking to manage their long-term risk exposure to the natural gas market.
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