Natural Gas Bulls Pray For Sheer Cold As Storage Loses Charm

Natural gas bulls’ favorite statistic for the winter—low storage—is fast disappearing.

The U.S. Energy Information Administration’s weekly supply-demand update showed on Thursday that gas in underground caverns was 33 billion cubic feet above year-ago levels, while it maintained a deficit of just around 305 bcf to the five-year average.

The 2018/19 cold season that began on September 23 with the start of fall saw some of the lowest pre-winter gas reserves. Early storage readings showed a deficit of more than 600 bcf to the five-year average.

Despite utilities adding more gas to storage over the past four months than burning it, last week’s utilization of 163 bcf still exceeded analysts' 145 bcf forecast for heating demand.

And those long on NYMEX’s Henry Hub futures for February and March could be fortifying their positions next week as the Midwest and Eastern regions brace for another icy blast that could deliver more of the kind of intense heating demand seen from the latest cold snap between Sunday and Tuesday.

Dan Myers, who studies gas supply-demand for Houston-based consultancy Gelber & Associates, said late winter surges could result in larger-than-expected drawdowns from storage through January, keeping key Henry Hub futures above $3 pricing despite less-than-stellar fundamentals. Added Myers:

“Next week will be the one to watch as extreme cold invades and drives heating demand substantially higher going into February.”

“The market has discounted this risk by deflating the winter premium earlier this week, but it will be difficult to ignore if inventories begin to drain faster than average and there is still more cold left in store.”

Dominick Chirichella, director of risk and trading at the DTN-owned Energy Management Institute in New York, agreed, saying the call on gas-fired heating will be above normal in the coming week, as 80 percent of eastern U.S. was expected to experience below-normal temperatures.