March 16, 2018

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Natural Gas Falls For A Second Day As EIA Storage Report Disappoints; Gas Demand To Remain Strong Through Next Week With Consecutive Bullish Weekly Inventory Withdrawals Likely As Another Nor'Easter Targets New England; Rapidly Approaching Shoulder Season to Pressure Supply/Demand Balance & Prices As Production & Canadian Imports Rise

6:00 AM EDT, Friday, March 16, 2018
In its weekly Natural Gas Storage Report for March 3-9, the EIA announced Thursday morning that inventories dropped by -93 BCF. This was 4 BCF smaller than the 5-year average -97 BCF and 10 BCF smaller than my projected -103 BCF draw. With the withdrawal, natural gas inventories fell to 1532 BCF while the storage deficit versus the 5-year average dropped under -300 BCF for the first time since December 29, 2017. It was the fourth consecutive bearish storage withdrawal.

With natural gas production leveling out in recent weeks, the smaller-than-expected withdrawal seems to have been driven at least partially by growth in natural gas imports from Canada. Natural gas imports for March 3-9 averaged 6.4 BCF/day, up 0.6 BCF/day week-over-week and up 1.0 BCF/day from 2017. As a result, despite production sliding by 0.2 BCF/day week-over-week, total natural gas supply actually rose by 0.4 BCF/day week-over-week to a new all-time high of 84.7 BCF/day, up a massive 7.4 BCF/day year-over-year, as shown in the Figure to the right. With Canadian imports looking to top 7.0 BCF/day and production rebounding as well for the current storage week ending today based on early EIA data, look for total supply to top 85 BCF/day and year-over-year gains to approach 8 BCF/day in next week's report for March 10-16. With news regarding record production already dominating natural gas circles, strong Canadian imports is just adding insult to injury and, should it persist, act to loosen supply/demand balance further, even with expected record powerburn demand this summer. Click HERE for more on current natural gas inventories and HERE for more on current natural gas supply and demand data.

Following the EIA's bearish report, natural gas prices unsurprisingly dipped with the commodity falling 5 cents or 1.8% to settle at $2.68/MMBTU and pushing its losing streak to 2 days. While the EIA will undoubtedly report a bullish storage withdrawal next week and the near-term temperature outlook remains moderately favorable for natural gas demand, the continued rise in supply as the calendar approaches the end of the heating season is of the more pressing concern, in my opinion. It is why I remain cautiously bearish and maintain a near-term price target of $2.50/MMBTU. Thursday's disappointing EIA storage numbers only reinforced that sentiment. Crude oil, meanwhile, saw small gains for a second straight day as the commodity rose 23 cents or 0.4% to settle at $61.19/barrel in follow-through after Wednesday's bullish EIA Petroleum Status Report. With inventories still likely to flip to a deficit versus the 5-year average in the next week or two despite record production thanks to strong demand, I remain a crude oil bull with a 6-month price target of $70/barrel. My Oil & Natural Gas Portfolio rose for a second straight day on Wednesday, gaining 0.5% to push gains since the portfolio's inception on May 1, 2017 to +41.1%, within 0.3% of all-time highs. The portfolio is up +7.8% year-to-date through the first 51 trading days of 2018, or +38.6% annualized. As a reminder, subscribers gain access to my realtime portfolio holdings, recent trades and twice-weekly investing commentaries detailing my market outlook and near-term trading strategy on my password-protected Portfolio Page. To learn more about subscribing and helping to support the site, please click HERE. Remember, just because you are correctly bullish or bearish towards natural gas and oil doesn't mean that your trading strategy will be profitable. This portfolio presents shows different strategies in action which, based on performance so far, have for the most part been successful.

Natural gas demand will rise slightly today as temperatures cool across the Northeast and upper Midwest. Highs in Washington, DC will peak near 50F today while New York City and Boston will struggle to break 40F today, all 5F-10F colder than both Thursday and historical averages. In the wake of a routine springtime Great Plains snowstorm that will bring 8-12 inches of snow to the Black Hills, highs will be 5F-15F below-average behind this storm system across the western Dakotas and eastern Rockies with readings generally only reaching the upper 20s. For a second straight day, the southern Plains will be the stronghold of mild weather with Texas, Oklahoma and Kansas all seeing highs today well into the 70s, 10F-20F warmer than normal. Overall, the forecast mean population-weighted nationwide temperature will rise around 0.7 BCF from Thursday thanks to building warmth across the south, but will remain 0.8F colder-than-normal at 48.4F. Total Degree Days will rise around 0.6 TDDs day-over-day to 17.4 TDDs, 0.8 TDDs greater than normal and the 13th most for March 16 in the last 37 years since 1981. Click HERE for more on today's temperature and degree day outlook. Based on this forecast and early-cycle pipeline data, I am projecting a -13 BCF/day daily natural gas storage withdrawal, 1 BCF larger than Thursday and 6 BCF/day bullish versus the 5-year average. Click HERE for more on today's projected daily withdrawal and realtime natural gas inventories.

For the natural gas storage week of March 10-16 that ends today, I am projecting a preliminary -95 BCF withdrawal, 42 BCF bullish versus the 5-year average of -137 BCF. Residential and commercial heating/cooling demand will rise by around 1.5 BCF/day compared to last week thanks to the powerful Nor'Easter at the beginning of the week that dragged down frigid air from Canada. However, this projection has declined by around 10 BCF over the past day based on the latest supply/demand data suggesting that Canadian imports and production will both rebound this week, as discussed above. As the Figure to the right shows, such a draw would be the second largest in the last 5 years for the March 10-16 period, behind only last year's -137 BCF draw, which was also the largest for the week all-time. Should a -95 BCF withdrawal verify, natural gas inventories would fall to 1437 BCF while the storage deficit versus the 5-year average would rebound after 4 weeks of contracting to -338 BCF. The EIA will release its official storage numbers for the week next Thursday, March 22, at 10:30 AM EDT. This projection may be revised over the next 72-96 hours as finalized temperature and pipeline data is integrated into my model. Click HERE for more on this week's projected storage withdrawal.

Looking to the week ahead, natural gas demand will remain above-average throughout the week as a favorable trough sets up shop across the East allowing seasonally cool Canadian air to filter down over the major demand centers of the Northeast, Southeast, and Great Lakes. The cold air will be accompanied by yet another Nor'Easter--or even a pair of Nor'Easters depending on your preferred model--that could deliver a half foot of late March snow anywhere from Washington, DC to Boston. As of right now, the coldest day of the week looks to be Wednesday in the wake of this storm with highs 15F-20F colder-than-normal across much of the Eastern Seaboard and Appalachians, driving late-season heating demand. As the Figure to the right shows, daily natural gas storage withdrawals will be well-above the 5-year average -7 BCF/day throughout the way, peaking at around -13 BCF/day on Wednesday. As a result, I am projecting a second straight bullish -76 BCF weekly storage withdrawal for March 17-23, 30 BCF larger than the 5-year average. Should it verify, natural gas inventories would fall to 1355 BCF while the storage deficit versus the 5-year average would rise to -374 BCF, up 80 BCF in the next 2 storage reports alone. The EIA will release its official storage withdrawal numbers for this week on Thursday, March 29. Click HERE for more on next week's projected storage data. Heading into the final week of March, forecast temperatures continue to look seasonally cool and it is likely that we will see another near or larger-than-average storage withdrawal. However, it is likely that this will be the final or penultimate storage withdrawal of the 2017-2018 heating season with season-ending inventories finishing near 1330 BCF. Stay tuned.