Last week was a particularly quiet week on the NYMEX natural gas market. The April 2019 prompt month contract settled at 2.865 on Friday, gaining just over a half penny on the week, while the 12-month strip spent most of the week circling the $3.00 mark. The 36-month average moved up just over a penny, the largest move of the benchmarks listed here, but long-term prices continue to trade at a more than 20 cent discount to the 12-month average.
Despite some warming on the West Coast, March continues to look like a colder than average month in the Eastern half of the country. The NOAA 6-10 Day Outlook shows cold temperatures stretching from the Northeast all the way down through Texas and covering most of the Midwest. This final push of winter weather could test season ending inventories as projections creep closer to 1 TCF of natural gas in storage to begin the injection season.
On the topic of inventory levels, last Thursday’s storage report brought news of a 149 BCF withdrawal. This number fell right in line with expectations, and the market did not react much. However, when compared to historical metrics this was a rather bullish withdrawal. For comparison, the 5-year average for the same week is 109 BCF and last year we saw just a 60 BCF withdrawal. With many analysts expecting bullish withdrawals throughout March due to the aforementioned cold, it is feasible that inventories could end up below the 1 TCF mark at winter’s end.
While natural gas production has begun to level off and has been averaging right around 85 BCF/Day since the beginning of winter, this number is still around 8 BCF/Day higher than the Mar-18 average. This year-over-year increase in production is one of the reasons that the market is not reacting with as much volatility as we may have seen in the past when faced with a storage deficit of 464 BCF against the 5-year average. It will be interesting to see how the market weighs these production levels if the year end balance does in fact dip below 1 TCF.
Like natural gas, power prices were rather quiet last week as well. However, most power markets experienced some slight downward movement despite natural gas prices moving up slightly. Most markets fell by less than 1% on the week.
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