Impact of Inventory Decline on Natural Gas Futures
The absence of a more shocking headline draw in nat-gas storage, given worries of a possible record draw leading into the report, has resulted in nat-gas futures giving back their big gains from earlier in the day. Tyler Richey, co-editor at Sevens Report Research, shared that despite the “enormous” weekly drop reported by the EIA, gas in storage is still above the five-year average and year-ago levels.
Production and Consumption of Natural Gas
U.S. dry natural-gas production experienced a decline to 88 billion cubic feet per day on January 16. This was due to production “freeze-offs” in several regions. However, consumption of natural gas rose to 123.4 billion cubic feet for the week of January 11-17, up from the previous week and year-ago levels, according to EIA data.
Volatility and Price Forecast
Natural gas prices have been volatile this winter, influenced by weather forecasts. However, with record-strong production, heating-degree days below year-ago levels, and the temperature forecast skewing above average across the U.S., there is likely little upside left in natural gas prices. The EIA has reported that U.S. dry natural-gas production reached an all-time monthly high in December. Looking ahead, prices will heavily depend on weather patterns, especially if another massive cold spell occurs.
Predictions for Winter Withdrawal
If the U.S. experiences another dip in the jet stream bringing colder air down from Canada, there may be a surge in natural-gas prices. However, current estimates suggest that the drawdown in natural gas inventories may outpace the five-year average by 43 billion cubic feet, or about 23%, and be significantly larger than the year-ago withdrawal estimate. This prediction is based on EIA data.