August 17, 2017

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Natural Gas Pulls Back Ahead Of Today's Projected Near-Average +48 BCF Storage Injection; Oil Dips After EIA Reports 2-Year High Domestic Production Even As Inventories See Largest Weekly Drawdown For August 5-11 On Record; Nuclear Outages Hold Near 5-Year Low, Suppressing Natural Gas Substitution Demand

6:00 AM EDT, Thursday, August 17, 2017
The EIA reported a massive -8.9 MMbbl crude oil drawdown for August 5-11 in its Wednesday morning Petroleum Status Report, but oil fell nearly 2% on the day due to fears over domestic production, which rose to a new 2-year high. For more discussion and analysis of this week's data, please see my article published this morning on Seeking Alpha entitled, " EIA Reports Record Weekly Inventory Drawdown, But Oil Falls As Tug-Of-War Continues--Who Is Right?"

Turning now to natural gas, that commodity continued its own pullback on Wednesday ahead of today's Weekly Storage Report, falling 4.5 cents or 1.5% to settle at $2.89/MMBTU. The commodity has fallen each of the first 3 days of the trading week, dropping 3.2%, and has given back nearly half of last week's 7.5% gain. The driving force behind the pullback seems to be a moderation in the temperature forecast for the second half of August which had turned sharply warmer late last week, even as natural gas remains nearly 12% undervalued according to my Fair Price Model based on current inventories alone.

The EIA will release its weekly natural gas storage report for the week of August 5-11 this morning at 10:30 AM EDT. For the week, I am projecting a +48 BCF natural gas storage injection, which would be very near the 5-year average +50 BCF. As the figure to the right shows, it would be the third smallest injection for the August 5-11 period in the last 5 years, but considerably larger than #1 and #2, 2016's +23 BCF and 2012's +25 BCF. It will also be the largest weekly injection since the 4th of July-influenced week of July 7. The near-average injection was driven by a weekly mean population-weighted nationwide temperature of just 75.7F, nearly 2F cooler than normal and the coolest since the week ending July 1. As a result of the cooldown, I estimate that natural gas powerburn averaged just 30.6 BCF/day, down nearly 3 BCF/day week-over-week. Should a +48 BCF injection verify, natural gas inventories would rise to 3086 BCF while the storage surplus versus the 5-year average would decrease to +59 BCF or just +2%, the lowest since February 3 and down nearly 350 BCF since March 10. The year-over-year storage deficit will continue to contract due to a string of exceptionally bullish injections last summer, falling to +250 BCF. For more on this week's projection, please see my Weekly Storage Page HERE. Given the recent pullback and large undervaluation, natural gas would seem primed for a rally should today's injection come in lower than expected. However, given last week's much smaller-than-expected storage injection (+28 BCF versus projected +39 BCF), I am somewhat concerned that the reported injection this week (or in the near future) may come in larger-than-expected as EIA storage data re-equilibrates with my temperature- and pipeline-based projections as well as the EIA's own supply/demand data. For this reason, I would not be terribly surprised to see an injection of over +50 BCF. However, I expect that a reported injection of less than +45 BCF will be considered unequivocally bullish with prices likely to make another run at $3.00/MMBTU while an injection of over +55 BCF would be considered bearish with prices likely to fall further. An injection between +45 BCF and +55 BCF would be neutral with prices equally likely to rise or fall.

Check back at 10:30 AM EDT for the official EIA storage injection on my Current Natural Gas Inventories Page HERE. Also, I now have weekly natural gas supply and demand statistics on my Natural Gas Supply & Demand Page HERE that should be updated between 3 pm and 4 pm EDT.

Natural gas demand will rise today as temperatures, particularly across the East, continue warm. Highs today will be in the upper 80s from Washington to Philadelphia, around 5F warmer than average, and around 80F in New York City and Boston, near normal. Elsewhere, it will be a sultry summer day across the Deep South with heat advisories in effect from coastal Texas, most of Louisiana, into southern Mississippi, where highs will be in the mid-90s but heat indices could approach 110F, around 5F warmer than average. On the cool side, highs will only be in the upper 60s and lower 70s across the northern Plains and western Great Lakes today, with Minneapolis lucky to see 72F today, 10F cooler than average under cloudy, showery conditions. However, thanks to the warming trend across the densely-populated eastern US, the forecast mean population-weighted nationwide high temperature today will climb to 78.3F, up 0.4F day-over-day and 1.6F warmer-than-normal. Total Degree Days will climb to 13.6 TDDs today, 0.1 TDDs greater than normal, and the 14th most in the last 37 years dating back to 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 +4 BCF/day daily natural gas storage injection, 1 BCF smaller than Wednesday and a bullish 4 BCF smaller than the 5-year average +4 BCF/day build. For more on today's projected build and intraday natural gas inventories, click HERE.

For the natural gas storage week that ends Friday, August 18, I am projecting a return to more bullish injections after the previous week's near-average build. I am projecting a preliminary +39 BCF storage injection for the week, which would be a solidly bullish 14 BCF smaller than the 5-year average +53 BCF injection. As the Figure to the right shows, it would be the second smallest injection in the last 5 years, behind only last year's exceptional +13 BCF injection. Should a +39 BCF injection verify, natural gas inventories would climb to 3125 BCF while the storage surplus would contract to +45 BCF, the lowest since January 20, 2017. The EIA will release its official number for the week on Thursday, August 24 at 10:30 AM EDT. Click HERE for more on the projected weekly build. Looking longer term, temperatures look to remain at or above average on a population-weighted basis through the end of August. Presently, I am projecting that natural gas inventories on September 1st will stand at around 3215 BCF while the storage surplus versus the 5-year average will have fall to just +10 BCF, poised to flip to a deficit by the middle of the month. Click HERE for more on the medium- and long-term temperature outlook.

In other news, nuclear powerplant outages have set new 5-year lows each of the first three days of the week. On Tuesday, outages dropped to a remarkable 4 GWh, just 0.5% of US capacity, before rebounding slightly to 11 GWh on Wednesday. This is still 104 GWh below the 5-year average. There are no reactors completely shut down and only 3 with partial shutdowns--New York's Fitzpatrick, and Illinois' Clinton and Quad Cities plants operating at 62%, 99%, and 84% capacity, respectively. The remaining 96 reactors are operating at maximum capacity. Even during the mid-summer lull in maintenance, this is a remarkably low level of outages, among the lowest ever recorded. Daily nuclear outages over the past 60 days are shown in the Figure to the right. As a result, Wednesday natural gas substitution demand stood at a negligible 0.09 BCF/day. Through the first 5 days of the storage week, total natural gas substitution demand stands at just 1.3 BCF, down a whopping 3.6 BCF from the 5-year average. I expect outages to remain suppressed in the near-term which could limit temperature-independent natural gas demand. However, as the calendar turns to September, outages will likely begin to rebound as the maintenance season kicks into gear. Click HERE for additional data on nuclear outages, updated daily between 7 AM and 9 AM EDT.