The following is a summary of last week’s market activity and the market outlook:
- The previous week’s price declines were quickly erased, as the NYMEX rallied early last week, mostly due to revised weather forecasts calling for more severe cold, ongoing storage concerns and active technical buying near $4.00. Futures were up 22 cents on Monday and then tested $4.50 on Thursday before declining after a smaller-than-expected storage withdrawal.
- Weather reports are predicting a return of the brutal cold to the eastern half of the U.S. for the rest of the month. Spot prices already rallied on Friday for deliveries through Tuesday (due to Martin Luther King day) to Northeast delivery points. Longer-term prices remain stable as market volatility was focused on Calendar 2014.
- The EIA reported a withdrawal of 287 Bcf for the week ending Jan. 10, which was an all-time record withdrawal but was still less than expectations of approximately 300 Bcf. Current inventory is 2,530 Bcf, which is 659 Bcf (20.7%) below last year and 443 (14.9%) below the 5-year average. Last week’s mild temperatures should result in a very small withdrawal (approximately 80 Bcf) for the week ending Jan. 17 however this week’s colder temperatures will likely result in future draws of near 200 Bcf–or additional record withdrawals ,depending on the extent of the cold
- The market’s quick reaction to test the $4.00 support level is a testament to near-term strength due to the storage deficit and weather forecasts. Similarly, resistance near $4.50 was confirmed on Thursday, although the story might have been different without a storage surprise. The $4.00–4.50 range may make sense until there is a better view on weather and storage going into February. Long-term fundamentals remain unchanged, as evidenced by the lack of price movement.