Posted: Oct. 29th 2020
Research Natural Gas Storage Report – 29 October 2020
US natural gas inventories increased by 29 Bcf for the week ending October 23, compared with the five-year (2015–19) average net increase of 67 Bcf. Working gas stocks total 3,955 Bcf, which is 289 Bcf higher than the five-year average and 285 Bcf higher than last year at this time. Analysts’ expectations had been for an injection of 37 Bcf. Once again, analysts’ estimation was not quite in line with the EIA storage report as the demand for natural gas continues to increase. Nov20 contract expired yesterday at $2.996. The December contract, which now trades as the prompt NYMEX contract, had been trading down on the day after its opening at $3.283. The contract hit a daily low of $3.151 before the report was released. However, fresh buying followed the report’s release and sent the Dec20 to an intra-day high of $3.346. Despite storage inventory levels nearing the 4 TCF level, the market anticipates a very unusual October withdrawal for the next week’s report. The overall weekly gas supplies have been lower due to several reasons: (1) freezing conditions impacting well output in the MidCon; (2) Texas production regions have been coupled with the lost production from the Gulf of Mexico production region because of Hurricane Zeta. All of these events combined when the parts of US have already or will be experiencing unseasonably strong heating demand. Considering HDD demand in conjunction with surging LNG feedgas demand, analysts predicted a 20-30 BCF withdrawal in next week’s report. Weather forecasts point to a return to normal and above-average temperatures as the calendar flips to November. The weather forecasts should help storage levels and possibly add a few more small injections before the winter heating season truly kicks into gear. While, from a historical perspective, a storage inventory level at or near 4 TCF would be a very comfortable place to start winter, the lost associated gas production in the US since the COVID19 pandemic has underscored the natural gas market’s expected supply vs. demand imbalance for 2021 and likely into 2022. Natural gas prices are poised to surge higher in the coming weeks under the right weather conditions and the historical levels of daily demand from both LNG and Mexican pipeline exports. Analysts warn that near-term NYMEX pricing could trade into the $4-$5 range for the peak winter months of Jan21-Mar21. Storage inventory levels are forecasted to draw down to about 1.3 TCF by the end of March and potentially only reach about 3 TCF next injection season heading into winter 2021-2022. These scenarios are very bullish for gas pricing for the next summer and following winter. End users with open NYMEX exposure in 2021 and 2022 are strongly encouraged to build hedge positions to mitigate price exposure.