Weather, "Ambitious Refills" Contribute to Storage

Noting the mild temperatures across the country, favorable arbitrage spreads and "ambitious distributor refills," the industry continues to "inject a significant amount of natural gas into storage," said UBS Warburg analyst Ronald Barone last week in his weekly research note. Even though national supplies now stand at 958 Bcf versus 1,117 Bcf a year ago, Barone said he expects to see the storage deficit drop and perhaps post a surplus by this summer.

Supplies include 320 Bcf, or 34% full in the producing region, 432 Bcf, or 24% in the East and 206 Bcf, or 41% in the West. "With the latest injection, the year-over-year storage deficit has dropped to 159 Bcf from 209 Bcf in the prior week and 279 Bcf the week before," Barone said. "Given overall national conditions [last] week, the near-term lackluster temperature outlook and the next three comparisons of 46, 55 and 56 Bcf, we would not be surprised to see further erosion in the deficit by months-end, including the possibility of a year-over-year surplus by the summer."

Barone said his $4.60 May and $5.20 June composite assumptions are "under water", and will lead to "ultimately causing our overall $5.75/MMBtu forecast to be aggressive." He said he expects price resilience from fuel switching, with a return of elastic loads, but added that it "may come too late to offset the current environment, which is beginning to weigh heavily on the year-to-date average price, currently at $5.85/MMBtu."

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