The following is a summary of last week’s market activity and the market outlook:
- NYMEX volatility disappeared and it was the quietest week of the year–a radical change from the trend of the last few months–however prices were not down. April futures were unchanged and stayed in a relatively tight range ($4.45 to 4.75), with modest strength toward the end of the week. Prices for 2014 and 2015 did not experience significant change either.
- The NYMEX remains solidly backwardated, due to high 2014 prices caused by the Polar Vortex, although Calendars ’15, ’16 and ’17 all closed up last week, by 3 cents, 7 cents and 9 cents, respectively.
- The EIA reported a withdrawal of 152 Bcf for the week ending Feb. 28, 2014, which was larger than expected and above last year. Current inventory is 1,196 Bcf, which is 908 Bcf (43%) below last year and 758 (38%) below the 5-year average. If next three withdrawals are as expected, inventories would be ~900 Bcf with one week left in March (withdrawals are possible, but less likely in April). This would be lowest end-of-winter volume in storage since 2003 (702 Bcf).
- The next month will be very interesting, as heating demand declines and storage withdrawals eventually switch to injections. Generator maintenance season will commence and will sustain some gas demand for generation. Production growth should also resume and we will see the reaction of producers to higher prices. While the most severe low temperatures should be behind us, keep in mind that short-term weather risk is not over either. Near-term forecasts are calling for ongoing below-normal temperatures before normals return.
- Spring does not necessarily mean that the market will fall, as the focus will shift to summer/storage refill/generator maintenance. Lack of volatility and a backwardated forward curve may indicate value for 2015 and beyond, but how long that remains a value is uncertain, with EPA and LNG regulations pending that could have a bullish impact on these terms.