Natural Gas Weather And Storage Outlook

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Includes: BOIL, DCNG, DGAZ, GAZ, KOLD, UGAZ, UNG, UNL
by: Robert Boslego

Summary

HDDs are as low as last year.

Storage draws forecast to be even slower than last year.

Downside risk appears to be high.

The National Oceanic Atmospheric Administration (NOAA) released its update for heating degree days (HDDs). For the natural gas-weighted HDDs for the heating season through February 11th, NOAA estimates that HDDs are 18% below normal, and the same as last year.

For the week ending February 18th, it forecasts HDDs will be 22% below normal and 24% lower than the same week last year.

Looking ahead, market expectations for storage changes for the week ending February 10th is a drop of 130 billion cubic feet (bcf). That compares unfavorably to a draw of 163 bcf last year and a 5-year average draw of 156.

In the 4 weeks ending March 3rd, the data show a drop of 346 bcf. This average is 105 bcf slower than the same weeks last year, and about 209 bcf slower than the five-year average.

Storage Changes

2017

2016

5-Year

2/10/2017

-130

-163

-156

2/17/2017

-110

-158

-131

2/24/2017

-85

-67

-132

3/3/2017

-21

-63

-136

Total

-346

-451

-555

A review of the price action over the same period in past years is presented in the table below. Given the fundamentals above, and with March trading around $2.95 as I write this, it appears natural gas futures have more downside risk than upside potential.

Natural Gas Futures Prices

2016

2015

2014

2013

2012

5-Year

2/10/2017

$ 2.05

$ 2.68

$ 4.58

$ 3.28

$ 2.48

$ 3.01

2/17/2017

$ 1.94

$ 2.76

$ 5.21

$ 3.15

$ 2.68

$ 3.15

2/24/2017

$ 1.78

$ 2.90

$ 5.45

$ 3.41

$ 2.55

$ 3.22

3/3/2017

$ 1.64

$ 2.71

$ 4.49

$ 3.53

$ 2.36

$ 2.95

High

$ 2.05

$ 2.95

$ 6.15

$ 3.49

$ 2.68

$ 3.46

Low

$ 1.68

$ 2.68

$ 4.49

$ 3.15

$ 2.36

$ 2.87

Average

$ 1.82

$ 2.79

$ 5.17

$ 3.33

$ 2.53

$ 3.13

The end of season storage level is now expected to be 1,870 bcf. That is 607 bcf lower than last year, but 72 bcf higher than the 5-year average.

End of Draw ((NYSE:BCF))

2017

2016

5-Year Average

Max

Min

7-Apr

1870

2477

1798

2482

837

Looking further down the road, the market now expects storage to peak at 3,650 bcf in the fall. That is 359 bcf lower than a year ago, and 211 bcf lower the 5-year average.

End of Storage (BCF)

2017

2016

5-Year Average

Max

Min

3-Nov

3650

4009

3861

4009

3588

Conclusions

It's difficult to believe, but this winter is turning out to be even milder than last year. The weather forecast may change, but the downside risk in the short term is too large in my opinion. The longer-term outlook still looks good, though.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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