Crude Oil ( ) Brent Crude ( ) Natural Gas ( ) S&P 500 ( ) PHLX Oil ( )

Natural gas draw of 178 Bcf for the week ended January 15

The Energy Information Administration (EIA) released its natural gas data for the week ended January 15, showing a draw of 178 Bcf, bringing gas-in-storage levels to 3,297 Bcf. Despite the draw last week, natural gas storage remains 660 Bcf higher than the same time last year.

The week’s draw of 178 Bcf was 3.3 Bcf/d tighter versus last year on a weather-adjusted basis, according to research from Raymond James. An El Nino weather pattern damped the need for heating early in the winter, but the weather has started to cool, and is expected to continue to do so through February and March.

The withdrawal last week was the largest so far this winter, but the future for natural gas remains bearish. Even as the weather continues to cool, forecasts anticipate that it will remain warmer than last year on the back of the El Nino.

Supply and demand give bearish outlook

Raymond James Weather Adjusted Gas Supply and DemandNatural gas production was down sequentially in October, the latest estimates from the EIA show. Production fell 1.1 Bcf/d from September to October, but remains 2.5 Bcf/d on a year-over-year basis. The decreases will likely driven by Texas and the Gulf of Mexico, but increases in Ohio, North Dakota, and Colorado offset the lower production, said Raymond James.

Raymond James expects total gas supply to increase in 2016 by about 2.4% due to increasing Northeast pipeline takeaway capacity, but does not believe that demand will be able to keep pace. While some factors such as growing exports to Mexico, LNG and power plants substitution coal for gas will help demand, they will be more than offset by weak industrial gas demand, and the warmer than usual weather.

Assuming normal weather moving forward, Raymond James projects Henry Hub gas prices to average $2.00 per MMcf in 2016, down from $2.35, $2.65 in 2017, and $2.50 over the long-term.

Winter Storm Jonas pushes demand higher temporarily

Jonas Storm Map

Jonas Storm Map

Winter Storm Jonas has caused a temporary spike in natural gas prices along the East Coast, where natural gas prices rose above $5 per MMBtu today, reports The Wall Street Journal. The storm itself could reduce demand if it knocks out power in any major city, but it is hoped that colder temperatures will prompt consumers to use more of the gas in storage.

While the temporary boost in natural gas prices will help Appalachian drillers, it is not expected to have a broad effect on the market. Cold weather would need to continue until early March “to get a semblance of balance back in the market,” said Bill Costello, portfolio manager Westwood Holdings Group.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.