Cold Snap Heats Up Natural Gas Prices
Natural gas inventories plunged by 288 billion cubic feet (Bcf) for the week ending January 19, another massive decline that has tightened supplies and pushed up prices.
Total gas inventories now stand at 2,296 Bcf, which is 519 Bcf lower than at this point last year, and 486 Bcf below the five-year average. In fact, inventories are below even the lower end of the five-year range.
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The declines took the market by surprise, helping to push Nymex prices up to $3.50/MMBtu. Only a few weeks ago, prices traded below $3/MMBtu. The “bomb cyclone” that hit the eastern half of the U.S. in the beginning of January led to record levels of consumption. On January 1, total gas consumption in the U.S. hit an all-time single-day high. Still, prices only climbed modestly.
But another round of cold weather is in store, and the consistent declines in inventories for several consecutive weeks has drained U.S. gas storage. New forecasts show cold weather sweeping the country from the Midwest down to Texas and eastward. “The concern is in February, deliverability gets even more constrained versus the January event,” Joel Stier, a trader at StierBull Trading LLC, told The Wall Street Journal.
With inventories already drained from earlier this month, the buffer is getting rather thin. “Storage is low — precariously low,” Bill Perkins, who runs Skylar Capital Management LP, told the WSJ.
Gas inventories rise and fall according to the season, with inventories filling up between March and October, then drawing down in winter months. The last few weeks of sharp declines in storage put the U.S. on track to exit the winter season at about 1,320 Bcf, according to the median estimate of eight analysts and traders surveyed by Bloomberg. That figure would be 23 percent below the five-year average.
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