The following is a summary of last week’s market activity and the market outlook:
- Natural gas futures rose again due to a record storage report. The Prompt Month was flat or down 4 of the 5 days last week due to moderating temperatures but then rose 20 cents on Thursday after the EIA announced an all-time record withdrawal of 285 Bcf. The rally remains focused on 2014 prices and longer-term Calendar Strips declined.
- Natural gas prices are up this morning due to forecasts calling for a return of cold weather from Central to Eastern U.S. And, with many traders off for the holidays, this lack of liquidity can sometimes cause volatility.
- On Thursday the EIA reported a withdrawal of 285 Bcf for the week ending Dec. 13, 2013. This was well above expectations and a new all-time record withdrawal for any week (previous record was 274 Bcf from January 2008. Current inventory is 3,248 Bcf, which is 488 Bcf (13.1%) below last year and 261 (7.4%) below the 5-year average.
- In the near-term, the market is focused on weather and storage–production remains strong but is being outstripped by weather demand. In the medium term, we expect production to dominate. In the long-term, we expect bullish fundamentals (i.e. growing exports, gas demand for power generation due to coal loss and increased industrial demand) to chip away at shale gains.
NEW ENGLAND UPDATE: There has been ongoing extreme volatility for both gas and power, with spot gas ranging from $7 to over $30/MMBtu and day-ahead on-peak power ranging from $40 to over $200/MWh. January prices are strong and reflect significant risk premium.