This report covers the week ending May 26, 2017. Daily data for May 20 to May 25 is estimated. Daily data for May 26 is forecast. To read last week's report, please click here.
Total Supply/Demand Balance
We estimate that total demand for American natural gas totaled just over 420 bcf (down some 3% w-o-w, but mostly flat y-o-y). The deviation from the norm stayed positive, but decreased from around +19.0% to +16% (see the chart below). National consumption posted a third straight weekly decline, dropping by almost 4% to around 370 bcf (or 53 bcf per day). Total exports were up by almost a full percentage point from last week, boosted by rising pipeline nominations to Mexico and Canada.
* norm defined as simple average over the last nine years
The annual decline in dry natural gas production has slowed to just -0.8%, which represents the smallest gap so far this year. We expect this trend of decelerating y-o-y decline to continue partly due to base effect and partly due to genuine recovery in output. Currently, we expect dry gas production to grow by 0.5% and 1.4% y-o-y in June and July, respectively. Total supply (production + imports) averaged just over 79 bcf per day for the week ending May 26. Overall, total supply/demand (SD) balance should be positive and is estimated to reach 130 bcf this week. The volume is almost 13 bcf larger than a week ago, but 15 bcf below 5-year average for this time of the year (see the chart below). In absolute terms, this kind of volume is bullish for natural gas prices. However, the market is forward-looking and weekly changes in SD balance are less important than fundamental themes, such as: structural imbalance, end-of-season storage expectations, monthly balancing price and market sentiment.
* note, that total SD Balance does not equal storage flows.
This Thursday, the EIA reported an injection of 75 bcf. We expected an injection of 69 bcf (lower than the consensus of +71 bcf). Total storage now stands at 2,444 bcf, which is 241 bcf (or 10.90%) above 5-year average for this time of the year. See our recent track record in the table below.
Currently, we expect EIA to report an injection of 77 bcf next week (final estimate will be released next Tuesday). Our projection is 9 bcf higher than the comparable figure in the ICE's latest report for EII-US EIA Financial Weekly Index, implying a small potential for a "bearish surprise". Overall, at this point in time, we expect flows to storage to average 84 bcf over the next three reports. Natural gas inventories deviation from 5-year average should decline from +10.90% today to +8.70% on June 9. See the evolution of storage forecasts in the chart below. Notice, that we have been consistently revising up our near-term storage estimates. The total for three reports went up from 214 bcf on May 12 to 252 bcf today. This bearish revision to storage forecast was one of the key reasons behind recent decline in price.
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