With overnight weather data trending somewhat cooler and the market preparing to digest the latest weekly government storage report, natural gas futures were trading slightly higher early Thursday. The May Nymex contract was up 2.9 cents to $2.748/MMBtu at around 8:30 a.m. ET.
Estimates have been pointing to a light, near-average late-season withdrawal from this week’s Energy Information Administration (EIA) storage report. As of Wednesday afternoon, a Bloomberg survey showed a median prediction for a 41 Bcf withdrawal for the period ended March 22, based on 13 estimates ranging from minus 29 Bcf to minus 54 Bcf.
Intercontinental Exchange EIA financial weekly index futures settled Wednesday at a withdrawal of 32 Bcf, while IAF Advisors analyst Kyle Cooper called for a 33 Bcf pull. NGI’s storage model predicted a withdrawal of 40 Bcf.
A pull in the neighborhood of 40 Bcf would fall in line with the five-year average 41 Bcf withdrawal, but it would look bearish compared to the 66 Bcf withdrawal EIA recorded in the year-ago period.
As for the overnight weather data, model guidance added back some gas-weighted degree days to the 15-day outlook period, according to Bespoke Weather Services. The latest data pulled “expectations for the next 15 days slightly above the five-year average even as demand easily lags below what was observed last year.”
The overnight changes included “a slightly stronger short-term cold shot combined with a pattern in the longer-term that holds a slightly stronger trough across the center of the country that can allow weak cold shots into the East,” the forecaster said. The upstream negative Eastern Pacific oscillation “does still look to break down, however, and the lack of any downstream blocking limits how cold any air can get.
“...We are looking at a draw of just 34 Bcf this morning, which is likely to be relatively unimpressive, and even looser balances through the week with loose power burns,” lower liquefied natural gas exports and “elevated production mean it will be hard for the May contract to hold onto any gains.”
Looking longer-term, booming production has left the market flush with supply and flattened out the shape of the traditional seasonal price curves. But growth in power burns has helped demand keep pace, and 2019 is shaping up to be another record-breaking year for gas demand in the electric sector, according to analyst Dan Grunwald of Morningstar Commodities Research.
Citing EIA data, Grunwald pointed to a nearly 15% year/year increase in electric sector natural gas consumption in 2018, going from 92,501 Bcf in 2017 to 106,257 Bcf last year.
“With over 7,000 MW of generation capacity added in 2018 and another 6,500 MW of summer capacity being added this year before summer, we are set for another record-breaking demand season,” Grunwald said. “The added gas capacity and loss of coal in the supply stack should see 2019 demand surpass 2018. If the total added plant capacity ran at 100% this summer, it would add just over 1 Bcf/d. Realistically that will add 0.5-0.75 Bcf/d outside of a very temperate summer.”
Recent Nymex futures prices show the 2019 summer months trading at a slight discount compared to the same months in 2018 and 2017, according to the analyst.
“That leaves slight upside potential in a strong demand summer with greater sector reliance on natural gas given coal retirements,” Grunwald said. “Looking at the winter months, last year saw some volatility with tight storage levels, but after a strong start to winter things settled back down. This year the winter curve has flattened again.
“...Storage levels should be bolstered again this spring, but like last year strong summer power demand could see us entering winter again at some of the lowest levels in years.”
May crude oil futures were down 88 cents to $58.53/bbl at around 8:30 a.m. ET, while April RBOB gasoline was off about 4.4 cents to $1.8519/gal.