Natural Gas Corner - Market Review - Sellers Take Advantage of Today's Early Strength

It has been a disappointing winter thus far for the natural gas bulls as below-normal winter forecasts have in fact turned out to be quite the opposite.

The natural gas market couldn't hold onto early gains made today as the spot February 15 contract topped out at a 3.176 morning high, nearly 6% higher than last Friday's close.

But as has been the norm over the past 7 weeks, sellers came in on early strength dropping the market to a 4% lower close with the spot February 15 contract settling at 2.882.

The near term forecast over the next week is supportive with the first cold spell hitting since November much of the upper U.S.  The 8-14 day forecast however released today is much warmer predicting a period of above-normal temperatures across much of the western U.S.

December weather-related demand for natural gas was very low with the past 5 weeks storage withdrawals totaling just 212 Bcf, 319 Bcf or 60% below the 5-year average withdrawal for a similar time period.

Low storage withdrawals this current winter and record high U.S. natural gas production which in late-December reached a new daily high of 73.5 Bcf according to a Bentek report have set the stage for a potential downside price break similar to the winter of 2011-12.   During that winter, the spot price of natural gas fell from a summer 2011 price high of 4.983 in June 2011 to an eventual low of 1.906 the following April of 2012, a 62% decline.

On the other side of the equation is the potential for increased weather-related demand which currently doesn't look too robust beyond the upcoming week. 

A Bloomberg analyst survey for this week's EIA storage report suggests 133 Bcf of gas was withdrawn from storage last week in line with last year's 137 Bcf withdrawal and the 5-year average of 128 Bcf.

With 3,220 Bcf of natural gas currently in storage and 12 weeks until the end of the current storage withdrawal season, an average of 139 Bcf per week will need to be withdrawn to drop storage to the typical 1,500 Bcf level at the end of March.

But with weather-related demand expected to be tepid at best and production high, the natural gas market could be setting up for a much steeper decline than currently anticipated.