Natural Gas Breaks Out On Chilly Forecast…
Posted by zmann on November 28, 2006
…But Folks, We’re Almost Through The First Month Of Winter And It’s Been A Bust For Gas Demand.
Yes natural gas prices are up. A lot. Again. Traders can’t get their eyeballs unglued from the weather channel long enough to realize that from this point even the coldest winter on record would still yield above average trough storage levels in March.
- So far this month we haven’t pulled ANY gas out of storage.
- This week I’m expecting a draw of between 20 and 25 Bcf… Data from the Climate Prediction Center (CPC) shows it was indeed a bit colder last week and Wall Street analysts are looking for a draw of anywhere from 5 to 40 Bcf. Those guys at the low end don’t care much for accuracy but are instead engaged in a blatant effort to pull up consensus for an easy beat. I don’t think we’ll get the big draws expected by some because the data is skewed by where it was cold (the northeast) which is not as gas intensive as other regions of the country which were warmer.
- …but next week’s inventory reading will be a smaller draw since its been “short sleeves” weather in most parts of the country since Thanksgiving- say 10-15 Bcf.
- That leaves November with a smallish draw to kick off winter. Using the high end of my 2 weekly estimates for the remaining two weeks of November (and forgetting the fact that 2/5ths of the final week is really in December) that leaves November with a withdrawal of roughly 40 Bcf.
- On average November sees gas withdrawals from storage of 175 Bcf. Over the last 10 years this means that November has represented 8% of gas withdrawn over the winter months (Nov-Mar).
November generally sees sizable pulls from storage but not this year:
- Even with a repeat of the coldest Dec – Mar period on record, trough storage comes out at 1,235 Bcf which is above average. In the event of an average winter from here on out, we arrive at trough storage that is just short of last year’s record.
But Gas Prices Have Been Rocketing. So despite the facts that: 1) we’ve gotten off to a slow start on drawing down inventories this winter and 2) that gas will likely reach trough levels above average, gas pirces are racing ever higher. January gas is up $4.50, or more than 100% since late September to $8.57, a level not seen since last winter which was somewhat justified in the wake of Katrina and the devastation of production facilities in the Gulf.
This year those facilities continue to come back on line on an almost weekly basis. And don’t forget that the shale plays only continue to add production and long term reserves. The fall from these levels should be swift once traders realize anything but a severely cold winter will leave us right back where we started.