Analysts at Raymond James said they aren’t buying the recent talk on Wall Street of gas demand deterioration. Although lighter storage injections suggest demand is down due to higher gas prices, analysts should remember that prices for competing fuels are even higher, they said.

“Over the past several weeks numerous analysts reports have suggested there has been a massive destruction of gas demand as gas prices have recently moved above $3.50/Mcf. We believe the foundation for many of these reports is both poor analytical methodology and bad data,” Raymond James analysts said.

Analysts sometimes mistakenly use linear regression analysis to correlate shoulder month temperatures with storage withdrawals/injections. “In the shoulder months, however, this linear regression model breaks down.” In the shoulder months, storage operators will inject more or less the same amount whether there are 55 degree days or 75 degree days, they said.

To make matters worse, the transition to the Energy Information Administration storage report from the American Gas Association’s report also created confusion and generated bad data, leading to confusion over storage injections and underlying gas demand.

“To conclude that weather-adjusted natural gas demand has fallen 5-10 Bcf/d implies a demand deterioration level similar to what we saw in early 2001 when prices soared to near $10/Mcf.” However, fuel switching economics today still favor gas, they said, and industrial customers have no reason to shut down plants when the economy is growing.

The Raymond James analysts believe gas demand actually is up by about 3 Bcf/d compared to the same time last year, while gas production is down 2-3 Bcf/d. Based on this belief, they expect storage injections to remain below last year’s by about 5-6 Bcf/d (or 35-45 Bcf/week). “This means that over the next six weeks injections should average anywhere from 65 to 75 Bcf per week if our assumptions about natural gas supply and demand are correct.”

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