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Natural Gas Dips After EIA Reports Neutral +74 BCF Storage Injection As The Commodity Remains Slightly Overvalued; Preliminary +56 BCF Storage Injection Projected For Week Of April 21-27 Ending Today; Broad & Prolonged Period Of March-Like Chill Next Week As Pair Of Potent Storms Draw Cold Air Southward

6:00 AM EDT, Friday, April 28, 2017
In its weekly Natural Gas Storage Report for the week of April 15-21, the EIA announced on Thursday that inventories climbed by +74 BCF.

Latest EIA Natural Gas Inventories

Figure 1: Click here for more information on natural gas inventories.

This was 3 BCF larger than my +71 BCF projection, comfortably below my +/-5.4 BCF/week projection error and the smallest weekly error for my model since March 3. See more on my model's projection stats HERE. The injection was also a modestly bearish 16 BCF bearish versus the 5-year average +58 BCF build and was the second largest injection in the past 5 years and fourth largest in the past 23 years. Four out of the five natural gas storage regions saw bearish builds, led by the East region, which saw a +25 BCF injection versus the 5-year average +18 BCF. Nonetheless, with 303 BCF in storage, the East region maintains the largest storage deficit versus the 5-year average in the country at -53 BCF or -15%. The South Central region became the first to top the 1000 BCF mark this season, climbing a near-average +22 BCF to 1005 BCF. This region maintains the largest storage surplus in the country at +222 BCF or +28%. The small Pacific region was the only region to see a bullish build with inventories climbing +5 BCF versus the 5-year average +6 BCF. Overall, nationwide storage levels climbed to 2189 BCF while the storage surplus versus the 5-year average grew to +299 BCF or +16%. See more details on the EIA's report and seasonal storage data on my Current Natural Gas Inventories Page HERE

While the week's storage injection was bearish versus the 5-year average, with temperature removed as a variable, natural gas supply/demand balance remains tight, although the week did see some loosening. I calculate that the market was 1.6 BC/day loose versus the 5-year average, down from both 2.7 BCF/day tight the week before and the 1-month average of 2.8 BCF/day tight. Based on this supply/demand balance and near-term temperature projections, I am projecting a very early end-of-cooling-season peak storage level of 3785 BCF on the week ending November 10, 2017. This would be 88 BCF less than the 5-year average and 254 BCF less than last year's record peak. Additionally, it would be the second most bullish peak inventory level in the past 5 years behind only 2014's 3611 BCF. However, with season-ending inventory levels trending higher in the 2000s and particularly 2010's, it would still be the 8th largest storage level in the full 23 year period of record, which have ranged from last year's 4047 BCF to just 2748 BCF. See more on my Long Term Natural Gas Inventories Page HERE.

Overall, the week's report was within my target range and is thus best characterized as neutral versus expectations. Natural gas investors seemed to regard it as such. The commodity was down around 1% pre-report, jumped to flat on the day in the minutes following the report, before giving these gains up during the afternoon to finish down 3 cents or 1.0% to $3.24/MMBTU in the June 2017 contract's first day as the front month contract. The ETF UNG outperformed on the day, falling just 0.66%. Despite the pullback, thanks to the loosening of the market this week, natural gas remains 12% overvalued versus its Fair Price based on current inventories alone and a slight 4.3% overvalued based on the long-term 8-Month Average Fair Price. This slight overvaluation, but a generally cooler-than-average temperature forecast over the next 2 weeks (more on this below), favors sideways, rangebound trading over the next few weeks. I continue to hold a short position in the commodity via short UGAZ. I plan to continue holding with a price target of $3.00-$3.10/MMBTU for the June 2017 contract and will sleep easy at night.

Today's Forecast Departure From Average Temperatures

Figure 2: Click here for more information on on the near-term forecast.

Natural gas demand will hold steady today as a sharply contrasted temperature pattern remains in place with well-below average temperatures across the northern Plains and hot readings across the deep south. In advance of a major weekend storm that threatens to bring measurable snow from Denver to Minneapolis, highs will be 10F-20F colder-than-average across the Rockies, Plains and northern Midwest today. The largest anomalies will be found across a Colorado-to-Iowa corridor with temperatures only reaching the low 40s in Omaha, Ne, around 20F colder than normal with showery conditions. Denver, Co looks to struggle to 40F today, also 20F colder than average while Minneapolis will see 50F, around 12F colder than normal. These temperatures are more reminiscent of mid-March than late April. On the other hand, heat will build across Texas and Florida with multiple areas seeing 90F, around 10F warmer than normal. After several days of seasonally chilly temperatures and showery conditions across the Northeast, the warmth will finally break through today with the major demand centers of New York City and Boston both climbing into the mid-70s, 10F-15F warmer than average. As a result, the forecast mean population-weight nationwide temperature will climb nearly 2F day-over-day today to 65.7F today, 4.5F warmer than average. Forecast Total Degree Days (TDDs) stand at 9.6 TDDs today, which is 1.7 TDDs greater than average and the 17th most TDDs for the date in the 37 years since 1981. See more on today's temperature and degree day outlook HERE. Based on this outlook and early-cycle pipeline data, I am projecting a +7 BCF daily storage injection, flat day-over-day and 2 BCF smaller than the 5-year average +9 BCF/day. See more on today's projection and intraday storage data HERE.

Natural Gas Storage Injections For April 21-28: 5-Year Historical Comparison

Figure 3: Click here for more information on natural gas inventories.

For the natural gas storage week of April 21-27 ending today, I am projecting a preliminary +55 BCF weekly storage injection. The EIA will release its official report for this week next Thursday, May 4, at 10:30 AM EDT. A +56 build would be a modestly bullish 6 BCF smaller than the 5-year average +62 BCF build and 13 BCF smaller than last year's +69 BCF injection. It would be the second smallest weekly build in the last 5 years behind only 2012's +30 BCF injection and would be 23 BCF smaller than the 5-year maximum +79 BCF build from 2014, as shown in the Figure to the right. It would also be the 9th smallest build in the full 23 year period for which EIA data is available, which have ranged from +29 BCF in 1999 to an ugly +104 BCF in 2001. Natural gas inventories would rise to 2245 BCF while the storage surplus would dip slightly to a still-comfortable +293 BCF or +15% while the year-over-year deficit will rise to -371 BCF or -14 BCF. This remains a preliminary projection and will be revised further over the next 72 hours as finalized temperature and pipeline data is integrated into my model. See more on this week's projection on my Weekly Storage Page HERE.

April 29-May 5 Projected Daily Natural Gas Storage Injections

Figure 4: Click here for more information on Week 2 natural as storage

Looking ahead to next week, temperatures will remain well below average throughout the week as a pair of potent storm systems drag cold air south from Canada, favoring a second consecutive bullish natural gas storage injection. The first of these storms will impact the central Plains from Colorado to Minnesota this weekend. Denver could see 3-6 inches of snow while the western suburbs of Minneapolis could see a slushy few inches, although temperatures will be marginal for accumulating snowfall. Temperatures across this area will be broadly 10F-20F colder than average. Daily injections over the weekend will be in the +7-8 BCF/day range rising to near +9 BCF/day on Monday as the storm departs, versus the 5-year average +10 BCF. The second of two storms will then quickly spin up and take a more southerly route from the Texas Gulf coast to off the New England coast. While this storm will likely be just rain, it will drag cold air across a larger area with a truly impressive chill with highs only in the 50s all the way to the Gulf Coast by late next week. This translates to daily injections as low as +5-6 BCF/day by late next week, around half the 5-year average. The Figure to the right plots daily storage projections for April 29-May 5. As a result, I am projecting a preliminary +55 BCF weekly storage injection for the week of April 29-May 5, a bullish 18 BCF smaller than the 5-year average. It would be the second smallest build for the week in the past 5 years behind only 2012's +34 BCF and the 5th most bullish build in the full 23 year period of record. See more on this week's projection HERE.

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