Bloomberg scrapes show us that gas field production was higher by a bit more than 450 MMcf/d or nearly 3.2 Bcf for the week. Demand fell in all domestic categories (8.6 Bcf/d or 60 Bcf over the week), and even export market flows fell (by 0.15 Bcf/d combined or 1 Bcf over the week). Canadian imports rose 89 MMscf/d and helped widen the market.
Our analysis leads us to expect the EIA to report later this week that there was a 70 Bcf withdrawal for the Thanksgiving week ended Nov.23 (a good bit stronger pull given the weather than the five-year average withdrawal of 55 Bcf, and comparing with the 85 Bcf consensus whisper expectation.)
It may not be too early to note that if we continue to see above-normal withdrawals, we think the market could easily see well-below normal ending levels of gas in working storage at or before the end of March 2019. With every week of supra-normal withdrawals, it will become increasingly clear that this winter will end with gas working storage levels below 1 Tcf. That ought to tighten fundamentals and likely move gas prices as that date approaches.
Supply - Negative
Higher field supply will likely show up in the forthcoming report this Thursday, and we think this will continue to ramp up along with greater associated gas production from multiple sources including the Bakken play, offshore, and the Permian Basin. We do not anticipate any supply reductions based on freezeoffs or delayed LNG import deliveries. Accordingly, supply will offer little but negative pressure to this week's price activity.
Weather - Negative
Heating demand appears to be stronger than average given the cold blasts seen over Thanksgiving week which continues into the current week. But along with that, snow is disrupting travel and other work-a-day activities which could be a downer for demand. In the holiday week and subsequent slack days that normally see lower power demand, we think the winter winds of the west in Texas are generating strong wind energy output (West Texas hosts about 25% of the nation's wind capacity) at the expense of west-Texas gas demand. The Permian Waha hub spot price went negative reportedly on Nov. 26 and is hovering today under $0.80/MMBtu. We anticipate winter peaking wind energy will challenge West Texas gas demand and Texas gas prices, ceteris paribas, through the springtime. All in, we see Weather as being negative driver for gas prices this week.
Trader Sentiment – Negative
We have been commenting that the commodity price momentum since October has largely run much of its course already for this early in the season. Last week we saw trader sentiment as negative. Then spot intraday prices at press time of our report last week was at $4.65/MMBtu. Intraday prices as of press time today are at $4.28/MMBtu. The CFTC's Nov. 23 commitment of traders report for NYMEX natural gas futures and options showed that reportable financial positions (Managed Money and Other) on Nov. 20 were just 25,925 net long, and overall net long positions declined in the most recent week which adds another week to the string of consecutive net long declines.
Storage - Neutral
We estimate a storage withdraw of 70 Bcf will be reported by the EIA this week for the week ended Nov. 23. In our prior forecast, we estimated a gas withdrawal of 120 Bcf for the week ended Nov. 16 which was at the time higher than the 111 Bcf consensus estimate. We were right directionally, but the actual reported 134 Bcf withdrawal was even higher. That's the first of several consecutive withdrawals that we anticipate throughout the rest of the 2018/2019 winter heating season. But our 70 Bcf withdrawal expectation for this week is a little more than half of our previous week's expectation and even less than last week's reported figure. So this week's lighter withdrawal may be leading the market bulls to take a breather. All in, we see Storage changes as being a Neutral driver for gas prices this week.
Demand - Neutral
We see a neutral effect for structural demand side drivers this week. The report week ended Nov. 23 will see lighter demand as a result of the national Thanksgiving holiday albeit offset in part by stronger heating demand in most of the consuming region. However, strong winter winds will cause generation by wind turbines to ramp especially in Texas and that will hold down regional demand there.
Flows - Neutral
Absent any freeze offs or other upset conditions beyond the known pressure and flow restriction on the import pipeline in British Columbia, we see Flows being a neutral driver for gas prices this week.
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