Energy Prospectus

Tudor Pickering Holt:
"Natural gas storage recap – Stronger draw vs. Street, but the market didn’t bite (HHUB $2.69/mcf) – HH gas ended the day flat despite the reported (69)Bcf draw coming in bullish vs. Street expectations of (61), more in-line with (72)Bcf norms vs. previous weeks. This week’s data indicate a supply/demand step-change as the markets get out of the post-holiday funk, moving back towards last month’s levels implying ~2-3Bcf of undersupply. Today’s inactivity in gas prices is a bit of a head-scratcher, especially as the CPC increased the probability of La Niña lasting through the winter from ~65-70% in November to >80% yesterday. However, short-term weather forecasts are still exhibiting some volatility, throwing off the market. We continue to believe upcoming supply drivers will outstrip any weather-related demand, capping winter gas."

We need a BIG DRAW from storage to draw more attention for the traders who set the gas price on NYMEX.

As of December 8 natural gas storage is 201 Bcf below where it was last year. A year ago the weather turned very cold in the eastern U.S. and we ended the year with two big draws from storage (209 Bcf and 237 Bcf), which pushed the natural gas price over $3.70.

Based on the current weather forecast we should see over 500 Bcf drawn from storage by December 31st, which will take storage below where it was at the end of last year (~3,300 Bcf).

Today's gas price is a "bit of a head-scratcher" because storage is below the 5-year average and the outlook for the rest of the winter is colder than normal in the eastern U.S.

Let's see what a draw over 200 Bcf does.

BMO Capital Markets:
"Prompt month NYMEX markets traded in a tight 0.05 range today before settling 0.031 lower. The rally off the intraday lows was driven predominantly by the back end of the curve, with Cal22 actually rallying 0.02 despite the lower settle at the front. An inventory draw of -69 bcf came in on the bullish side of estimates and may have helped to spur on some positive momentum as we bounced from the 2.65 level. Next week’s weather forecasts warmed across the lower 48, leaving the Northeast as the lone colder than usual region on the map. Revisions in the 10-15 day period paint a much different picture, however, with colder trends in the eastern third and below 10-year average temperatures in the Rockies, Plains, Mid-Atlantic, and Northeast. ResComm demand over the next two weeks rose by approximately 30 bcf on the colder move at the back end of the range. In fundamental news, Columbia made a FERC filing to bring the 1.5 bcf/d Leach Xpress project online for January 1st. The Northeast to South Central connection was originally slated for a November in-service date, but was delayed until now. Finally, we are seeing strong Powerburn figures (+2.52 bcf/d of growth year-over-year) in an otherwise disappointing demand side story relative to the 5.5 bcf/d of supply growth. This structural shift in demand helps to improve the overall fundamental picture slightly, though without colder weather in 1Q18, we could actually end up close to max storage at 4.2 tcf next October given the supply growth."


Obviously, it is way too early to guess where storage levels will be next October, but there is a lot of gas coming on-line and a lot of demand expected in 2018. Confusion is fueling the BEARS today, but that can change quickly.