Energy Prospectus

Comments below are from the Raymond James Energy Team:

The U.S. Natural Gas Market moves toward neutral.
Excluding weather-related demand, the market was 0.1 Bcf/d looser compared to the same week last year and has averaged 0.6 Bcf/d looser over the past four weeks. Despite the withdrawal of 119 Bcf being greater than expectations, natural gas closed flat. This week's near neutral withdrawal number comes after the looser one last week.

Market moves toward neutral compared to prior year. This week's withdrawal of 119 Bcf was greater than the consensus estimate of a 115 Bcf withdrawal and our estimate of a 110 Bcf withdrawal. This implies that the market was 0.1 Bcf/d loser than last year on a weather-adjusted basis and it has averaged 0.6 Bcf/d looser over the past four weeks. As it relates, total gas in storage now stands at 2,078 Bcf, and the Y/Y storage deficit of 514 Bcf decreased by 33 to a deficit of 481 Bcf. Longer term, 2018 should prove to be a positive year for natural gas demand, as both exports to Mexico and outbound LNG tanker activity ramps-up. On the supply side, less Canadian import activity is expected.

However, we believe an increasing gas supply and growth in renewables that are increasingly becoming more cost competitive with gas will put further pressure on Henry Hub gas prices.

Comments below are from Credit Suisse

Withdrawal Above Expectations and Implying >1 Bcfd Tightening in Weather-Adjusted Supply/Demand Balance

■ Storage withdrawal above expectations. Inventories fell 119 Bcf, above
consensus of 115 Bcf and the high end of our forecast of a 105-115 Bcf
withdrawal. Last week’s withdrawal was below both last year and the 5-
year average withdrawals of 152 Bcf and 159 Bcf, respectively. Inventories
fell to 2,078 Bcf, narrowing the deficit vs. last year and the five-year
average to 481 Bcf and 428 Bcf, respectively.

■ Weather last week was warmer than both year-ago and the 5-year
average. Last week’s weather was 8% warmer than last year and 15%
warmer than the 5-year average. Since September, weather has been 10%
and 2% colder than last year and the 5-year average, respectively. Roughly
41% of winter heating days remain ahead of us.

■ Last week’s withdrawal implies the weather-adjusted S/D balance
Tightened >1 Bcfd WoW. Over the last month, we estimate the weatheradjusted
S/D has been oversupplied by ~0.9 Bcfd vs. last year but
undersupplied by ~1.6 Bcfd vs. the five-year average. We forecast the
storage withdrawal season ends with inventories exiting the winter at ~1.25
Tcf, ~450 Bcf below the five-year average and ~800 Bcf below last year,
boosting YoY refill demand by ~4 Bcfd.

■ Forecasting a 155-165 Bcf withdrawal next week. We forecast an 155-
165 Bcf withdrawal to be reported next week, above both last year’s 114
Bcf and the five-year average of a 146 Bcf withdrawal.

■ Gassy E&Ps discounting $2.40/MMBtu long-term natural gas price.
This implies valuations are modestly attractive vs. the long-dated (2022)
futures curve of $2.88/MMBtu and our normalized forecast of $3.00/MMBtu.
Our top E&P picks are MRO, CLR, APC, XEC, and XOG; top gas picks are
EQT and RRC