Natural Gas Corner - Market Review - Don't Get Too Bearish At Present Levels

Natural gas prices again came under selling pressure today the difference today being no late day rally as there was over the past two sessions. 

The spot February 16 contract closed back toward the lower end of the weekly range settling today's session at 2.267, down .058 or 2.5%.

Weather forecasts have changed suggesting a warmer end of the month than originally forecast.  There has been some disagreement in the end of month forecast and as last seen late-2015, a changing forecast can quickly rally prices back higher.

Weather will need to stay cold in order to draw down domestic stocks which remain at a record high 3,756 Bcf (billion cubic feet).  Tomorrow's EIA weekly storage number is expected to show a 100 Bcf withdrawal in comparison to last year's 131 Bcf draw. 

Storage withdrawals since the first week of November, the official start of the withdrawal season, have been disappointing with 175 Bcf withdrawn during this current winter in comparison to 474 Bcf average withdrawal over the past 5 years.  That is 63% lower than the 5 year average in a market which reached a peak storage high of 4,009 Bcf in late-2015.  Storage is going to have to pick up or new price lows will be almost certain later this spring.

It is still way too early to get overwhelmingly bearish this market at the present time even with the storage and weather situations looking very negative.   There are still many weeks of potential heating demand which could keep the market from trending lower near term.  There is also the possibility for another change in the weather forecast which could lead to another upward spike.

But without sustained heating demand, the natural gas market is likely looking at record high storage at the end of March, the official end of the withdrawal season.  Over the past 10 years, end of March storage has averaged 1,587 Bcf.  The record high for end of March storage was 2,472 Bcf in 2012 and the record low was 822 Bcf in  2014.  Unless storage withdrawals quickly ramp up, the 2012 high may be reached later this year.

Whatever the near term outlook for natural gas may be, the longer term outlook remains bullish as production in 2016 may finally begin to fall and U.S. consumption is expected to rise.