Natural Gas Market Commentary

[dan_s]

Nat Gas futures lower on upcoming warming trend (Note that his forecast of a 65 bcf draw from storage this week, will push storage down below the 5-year average.)

By Dominick Chirichella - Mon 01 Apr 2013 11:18:53 CT

The latest NOAA forecasts that hit the airwaves over the weekend are presenting a noticeably different picture than those issued just last week. The latest temperature forecasts as now suggesting that spring may finally be arriving. Both the six to ten day and eight to fourteen day forecasts are projecting above normal temperatures across most of the US with very warm temperatures projected for the eastern third of the country in the 8 to 14 day forecast.

Based on this round of forecasts the atypical heating related Nat Gas demand that has persisted since the official start of spring will likely come to an abrupt halt if the actual weather turns out to be in sync with the forecasts. The moderating weather should be arriving and settling in sometime later this week suggesting that this week's EIA inventory report could be the final net withdrawal of the season with the possibility of a small withdrawal in next week's report if the warming trend moves in slowly.

The futures market has been under light selling pressure since trading opened on Sunday night. The market is not yet ready to collapse as this week's inventory report will be very bullish when compared to the injection for last year and the five year average for the same week (see below for more details). In addition even with the lower demand shoulder season finally looking like it will get underway, total Nat Gas in inventory is now very manageable and at a normal level for this time of the year. The overhang or surplus in inventory is now gone leaving a lot of room for the injection season to evolve with no capacity issues.

For now I would categorize the Nat Gas market as neutral with a slight bias to the downside. I do not see a major price collapse anytime soon, Rather I am expecting prices to drift and establish a new trading range as the market starts to focus on the upcoming cooling season. Barring a big upside (larger than expected withdrawal) miss in this week's inventory report I am expecting the market to trade in a $3.80 to $4/mmbtu trading range for the remainder of the shoulder season.

This week the EIA will release its inventory on its normal schedule and time... Thursday April 4th at 10:30 AM. This week I am projecting an average withdrawal of 65 BCF from inventory.