The following is a summary of last week’s market activity and the market outlook:
- Natural gas prices continued to rally. Prompt Month natural gas broke through the $4.00 key resistance level, setting new 7-month highs above $4.10. Long-term natural gas prices rose slower, as the forward curve continued to become flatter. There is only about a 10-cent difference now between Calendar ’14 and Calendar ’16, compared to a 38-cent difference a month ago.
- On Thursday, the EIA reported a withdrawal of 162 Bcf for the week ending Nov. 29, 2013, which was far above expectations (120 to 150 Bcf), above last year (62 Bcf) and above the 5-year average (41 Bcf). Current inventory is 3,614 Bcf, which is 200 Bcf (5.2%) below last year and 104 Bcf (2.8%) below the 5-year average.
- There is little news outside of weather and natural gas storage. Near-term weather forecasts are calling for more below-normal temperatures for most of the U.S. for the next 10 days.
- Production remains strong but is being outstripped by weather demand for the short-term. We expect production to dominate during 2014. Long-term fundamentals are bullish due to growing exports, gas generation due to coal loss, and industrial demand chipping away at shale gains.
- For the near-term, unless you need to buy, you may want to ride out winter volatility and/or be ready to buy if a dip occurs. Beyond the winter, prices are still in their recent price range and may still present value, as the premium versus the near-term has shrunk.
NEW ENGLAND UPDATE: The January-March gas basis fell last week to around $11, as spot prices have been weak for both power and gas. The market is holding its breath to see the impact of the next cold snap. Spot price trends during this cold stretch could be a key driver of forward prices and risk premiums could shrink if spot prices don’t spike during the cold. Deep Panuke is producing gas again, but is not yet at its target of 300,000 Mcf/day.
