Natural Gas Storage
Higher than Expected Storage Withdrawal Spikes Prices
This past week, EIA reported natural gas withdrawals of 113 Bcf from storage; 13 Bcf higher than expectations. Upon release of the storage report, gas prices spiked 9¢ from $2.32 to $2.41/mcf.
Gas reserves remain 14.6% above the 5-year historic average and 17.2% above same-time last year.
With winter weather as the key driver of prices right now, the next three to four weekly storage withdrawals reported by the U.S. Energy Information Administration are expected to be the largest of the season so far. They are, however, likely to total about 70 Bcf less than the five-year average total.
Weather Forecast: Above Average Temperatures AcrossAll Northern States
The National Oceanic and Atmospheric Administration predicts above average temperatures for all northern states and western states for the remainder of winter. Below normal temperatures are expected in parts of the southern and southeastern states.
Temperatures over the next 3-4 weeks willbe a key factor in determining energy prices for the winter and into the spring and summer. Warmer temperatures in the north will point towards smaller than expected storage withdrawals. In turn, this will result in a surplus of low-cost natural gas to be used in electric generation.
Natural GasPrices Move Upward
After last week’s storage report and the recent Midwest cold spell, natural gas prices spiked over 9¢/MMBtu and eventually closed at $2.40/MMBtu. The combination of higher than expected withdrawals from storage and the colder weather contributed to the price rise.
The next few weeks are critical to price setting for the remainder of the winter and into spring. If the near term temperatures drop and the next few weeks of gas withdrawals exceed their projected 180Bcf and 160 Bcf levels, prices could spike further and plateau at the higher level. If storage withdrawals align with projections, prices should stabilize and possibly drop back down.
The 12-month strip prices are trading at $2.585 with 24-month and 36-month prices at $2.725 and $2.799 / MMBtu respectively.
In terms of other energy commodities, crude oil continues to drop from $40/barrel (last month’s report) to $33/barrel; well below the 52-week high of $94.58. Similarly, heating oil is trading down from $1.34/gallon (last month’s report) to $1.058. The same period last year saw prices at $2.30.
Now is a great time to lock in long-term heating oil. Natural gas prices are jumping up and a wait-and-see approach may be prudent over the next few weeks.
Natural Gas Prices Have Spiked - Is it an Anomaly or a Trend?
Last week’s storage report provided some concern for the markets and prices jumped. The near-term temperaturescould have a lasting impact on prices if withdrawals exceed projections. Stay tuned for market updates.