Market Commentary 12-08-2014

December 8th, 2014

12/08/2014 07:29 SNL: January 2015 gas futures retrace lower as fundamentals

remain bearish


    After rebounding 15.3 cents ahead of the weekend to a finish at

$3.802/MMBtu, January 2015 natural gas futures returned to the downside

overnight ahead of the Monday, Dec. 8, open amid persistent fundamental

weakness, as weather outlooks continue to reflect a warming trend expected to

diminish demand and allow for additional unimpressive storage withdrawals.

Moving from $3.711/MMBtu to $3.787/MMBtu, the front-month was last eyed 12.7

cents down at $3.67/MMBtu.


    Following a 162-Bcf drawdown in the week to Nov. 21 that marked the first

triple-digit pull of the 2014/2015 withdrawal season, the rate of storage

erosion slowed when the U.S. Energy Information Administration reported a

smaller-than-expected and significantly below-average 22-Bcf draw from stocks

for the week to Nov. 28.


    The latest pull from storage was only half of SNL Energy’s final survey

average calling for a 44-Bcf draw and was significantly bearish relative to the

141-Bcf drawdown seen in the corresponding week in 2013 and the 50-Bcf

five-year-average withdrawal.


    The reported storage withdrawal took overall natural gas inventories to

3,410 Bcf, narrowing deficits to 227 Bcf versus the same time in 2013 and 372

Bcf compared to the five-year average of 3,782 Bcf.


    Market participants anticipate a continuation of lackluster storage

withdrawals when the EIA releases its next weekly inventory report on Thursday,

Dec. 11.


    While natural gas demand ticked higher in the week ended Dec. 3, according

to the EIA’s latest “Natural Gas Weekly Update,” production remained robust,

thereby likely to have offset the amount of natural gas drawn from underground

storage facilities.


    Total U.S. natural gas demand climbed 3.1% during the report period, as

consumption increased across all demand sectors save for the power sector.

Residential/commercial-sector demand rose 6.7% week over week, as

industrial-sector demand was lifted 1.1% and U.S. gas exports to Mexico

increased 8%. Conversely, power burn fell 2.2% from the week-ago level.


    Meanwhile, total U.S. gas supply gained 1.4% week on week, primarily due to

ongoing strong production. Dry natural gas production ultimately ended the

report period 1.6% higher than in the prior week, with output levels seen

reaching a single-day record Dec. 2 as it exceeded 71.8 Bcf, and holding on to

above 71 Bcf/d during each day of the review week.


    An early survey of traders and analysts shows the expected pulls ranging

from 48 Bcf to 53 Bcf for the week to Dec. 5, which will compare against a

92-Bcf draw in the corresponding week in 2013.


    Combined with ongoing strong production, the slowdown in storage erosion

should allow for overall natural gas supply to remain on track toward a healthy

end-of-March level, especially as weather projections continue to signal

subdued demand in the weeks ahead.


    Revised forecast maps from the National Weather Service continue to show

the prevalence of above-average temperatures throughout the country in the

upcoming six- to 10-day period, spanning the entire West all the way through

the bulk of the East, leaving only the South Atlantic to see average to

below-average temperatures.


    Below-average temperatures hold over Florida and average temperatures

across portions of the South Atlantic spill on to a few areas of the

south-central U.S. further out to the eight- to 14-day period, but the balance

of the country is still expected to remain in the grip of above-average



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