May natural gas is set to open 4 cents higher Wednesday morning at $4.57 as traders weigh issues with natural gas storage builds. Overnight oil markets rose.
Observers see the market shrug[ging] off expectations for the first storage injection of the year. "Gas prices have now rebounded nearly 8% from last week's 2.5-month low, grinding higher amidst growing concerns surrounding the market's ability to replenish storage ahead of next winter, plus forecasts for cold weather and lingering heating demand next week," said Addison Armstrong of Tradition Energy. "But record production levels and expectations for a series of above-average storage injections in the coming weeks will likely provide resistance to rising prices until the onset of hot weather and increased cooling demands."
Analysts see natural gas priced cheap relative to current fundamentals. Tim Evans of Citi Futures Perspective said, "March 28 storage of 822 Bcf was the lowest since 2003, but prices are only slightly more for this time of year than in recent years. Only the 10-year price lows from April 2012 stand out as extraordinary. Overall, this suggests that prices are fundamentally cheap with potential to trade in the $5 to $6 range instead of $4 to $5."
According to figures from industry consultant Genscape, storage injections week on week have increased at least 2 Bcf/d in certain locales. "East Texas storage injection increased by 0.6 Bcf/d week-on-week, going from 0.3 Bcf/d of withdrawal to 0.3 Bcf/d of injection and Midwest storage injection increased by 0.5 Bcf/d week-on-week, going from 0.0 Bcf/d of withdrawal to 0.5 Bcf/d of injection," Genscape said in a Wednesday morning report.
"California injections equaled those of the Midwest increasing 0.5 Bcf/d week-on-week, going from 0.6 Bcf/d of injection to 1.1 Bcf/d of injection and operators in Louisiana increased by 0.3 Bcf/d, going from 0.0 Bcf/d of withdrawal to 0.3 Bcf/d of injection. Southeast Mid-Atlantic storage injection increased by 0.1 Bcf/d going from 0.3 Bcf/d of injection to 0.4 Bcf/d of injection."
The Energy Information Administration (EIA) is looking for a record storage build. "Expectations for lower demand from the electric power sector compared with the past several years, as well as increasing production, should help enable a record-high stock build," EIA said in its latest Short-Term Energy Outlook (see Daily GPI,April 8).
EIA expects total natural gas consumption will average 72.1 Bcf/d this year, an increase of 0.7 Bcf/d compared with 2013. "Increased residential, commercial and industrial use offsets declines from the electric power sector, which are related to higher natural gas prices. In 2015, total natural gas consumption falls by 0.4 Bcf/d as a decline in residential and commercial consumption more than offsets consumption growth in the industrial and electric power sectors," EIA said. Gas consumption in the power sector is expected to increase to 22.8 Bcf/d in 2015 with the retirement of some coal plants.
In overnight Globex trading May crude oil rose 10 cents to $102.66/bbl and May RBOB gasoline gained a half cent to $2.9843/gal.