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Market Summary: 24 Feb-28 Feb 2014

The following is a summary of last week’s market activity and the market outlook:

  • The March 2014 natural gas contract reached an intraday high of $6.50 last Monday, before falling off sharply ahead of contract expiration. After posting the early morning high, March prices fell $1.44 Monday through Wednesday and the contract expired at $4.855/MMBtu. This was the Prompt Month’s lowest level since February 12, 2014 and was in large part due to profit-taking and traders closing out positions prior to expiration (with little change to the fundamentals of the market). The majority of volume migrated to the April contract–now the Prompt Month–which closed 31 cents below March at time of expiration.
  • To provide a sense of how volatile prices were this winter: prices traded in a $2.50 range this year, compared to 2013’s 60-cent range.
  • The EIA reported a withdrawal of 95 Bcf for the week ending Feb. 21, 2014, which was less than expected (105 Bcf) and below last year (165 Bcf) and the 5-year average (125 Bcf).  Current inventory is 1,348 Bcf, which is 905 Bcf (40.2%) below last year and 711 (34.5%) below the 5-year average. Estimates for the week ending Feb. 28 are 132 Bcf, which would be lower than last year (149 Bcf) but above the 5-year average of 105 Bcf.
  • Short-term weather forecasts are consistently showing below-normal temperatures for eastern half of the U.S. and stretching into Texas for the next two weeks. The most severe cold is expected across the Great Lakes, with above-normal temps expected west of the Rockies. Long-term, Earthsat’s March forecast is calling for more below-normal temperatures from Canada and into much of the eastern half of U.S., although not the South. Forecasts are similar for April but penetration of below-normal temperatures is not expected to be as deep.  Both near-term and long-term forecasts are bullish for the NYMEX.

Spring does not necessarily mean that the market will fall/dip, as the shift changes to summer/storage refill and generator maintenance. Long-term prices have seen a lack of volatility and the backwardated curve may be an indicator of value–however a lack of news does not mean a lack of risk.