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Market Summary: 27 Jan – 31 Jan 2014

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

  • It was the most volatile week in several years, with huge daily price swings resulting from severe cold weather for the eastern half of the U.S.  The February NYMEX closed at $5.03 on Tuesday, rallied on Wednesday as high as $5.72, and closed at $5.55 (final settlement), while March NYMEX (now the Prompt Month) fell 45 cents on Thursday after hitting a high of $5.465 on Jan. 29 (highest since July 2011).
  • The EIA reported a withdrawal of 230 Bcf for the week ending January 24, which was inline with expectations but above historicals. Current inventory is 2,193 Bcf, which is 22.5% below last year and 16.6% below the 5-year average. We are expecting a near record-breaking withdrawal this Thursday (estimates calling for 280 Bcf versus the 287 Bcf record set the week ending Jan. 10). We are also expecting two more >200 Bcf withdrawals for the two weeks (compared to normal withdrawals this time of year at approximately 150 Bcf).
  • Demand last week was 133 Bcf on Tuesday, compared to 139 Bcf on Jan 7, but the week was cold as low temps were sustained.  Ongoing pipeline constraints not only impact natural gas prices for heating but also prices to run gas-fired power plants, which pushes up spot prices in the many markets impacted by the extreme cold.
  • Near-term prices are driven by weather and storage, so expect ongoing volatility as the market digests and reacts to upcoming weather and storage changes. March does have upside if February is cold and the storage deficit grows. The storage deficit will also provide significant support to summer prices, as the need for larger injections will compete with gas-fired power generation needs (i.e. increased nuclear plant maintenance schedule), and will absorb shale gas growth.
  • Long-term prices are very stable, with NYMEX Calendar Strips (2015 and beyond) between $4.10–4.20, which is an indication that storage is expected to normalize and producers are sellers in that range. However, there has been little news regarding LNG imports and pending EPA regulations, so a lack of long-term movement may not be sustained. Keep an eye on regional and seasonal variations, as current price volatility may impact forward prices for locations that are most vulnerable to weather–especially future winters in Northeast.