The following is a summary of last week’s market activity and the market outlook:
- Natural gas futures rallied again during a short-ended trading week resulting from the holiday. Once again, cold temperatures, forecasts for more cold and a modestly bullish storage report were the causes for the price strength.
- Gas futures have basically moved from recent lows in early November to recent highs over a span of only 24 days, due to a change in winter weather forecasts. Long-term prices have followed much more slowly, resulting in a flatter forward curve. The Calendar ’16 versus Calendar ’14 spread has declined from 38 cents to 17 cents.
- Last Wednesday the EIA reported a withdrawal of 13 Bcf for the week ending Nov. 22, 2013. Current inventory is 3,776 Bcf, which is 2.6% below last year and 0.5% above the 5-year average. We expect a large withdrawal this week, with estimates calling for more than 140 Bcf (compared to 62 Bcf last year and 41 Bcf for the 5-year average).
- NEW ENGLAND WARNING: Winter gas basis topped $13/MMBtu last week, due to ongoing concerns over supply constraints, and winter on-peak power forwards followed suit, moving into the $130/MWh range for January-February. Last Monday, spot gas was over $12/MMBtu but then fell to below $6/MMBtu for today, while spot on-peak power prices have fallen from near $110/MWh back to the $70/MWh range due to milder temps. More cold is in the forecast for next week, so expect more volatility in both near-term and long-term forwards. In addition, the temporary shutdown of Deep Panuke, an off-shore gas drilling platform in New England, has been extended to Dec. 5.
Weather and storage remain the focus. This Thursday’s storage report will be the first big draw of the year and there is extreme nationwide cold forecast for the 6- to 15-day period. These two factors will be closely watched and could push gas futures to $4.00 if the cold arrives as predicted.