Natural Gas Weekly: Supply/Demand Balance And Evolution Of Storage Flows – Seeking Alpha

Total Supply/Demand Balance

We estimate that total demand for American natural gas fell to around 449-452 bcf this week (down almost 10% w-o-w, and down 8% y-o-y). National consumption plunged some 12% y-o-y, but total exports' increased by more than 36% over the same period, thus off-setting most of the weakness in domestic demand. The deviation from the norm decreased from 11% to just under 8%.

Source: GeckoiCapital

* norm defined as simple average over the last nine years

The annual decline in dry natural gas production has slowed down to just under 3%. However, we do not currently expect positive y-o-y growth in natural gas output until at least June, 2017. Increased imports from Canada helped offset some of the weakness in domestic output, but aggregate supply (i.e., production + imports) still fell some 2% y-o-y, although it did rise marginally w-o-w.

Overall, total SD Balance should be positive for the third straight week and is expected to reach as much as 100 bcf. This volume is almost twice as large as last week and some 16% above five-year average for this time of the year. In absolute terms, the balance should be bearish for the Henry Hub contract. However, as we have repeatedly said in our previous updates, traders seem to be less concerned about near-term weakness in fundamentals and are more focused on the end-of-injection-season inventory. Also, please note, that total SD Balance does not equal storage flows.

Source: GeckoiCapital

Storage

Currently, we expect EIA to report an injection of 47 bcf next week (final estimate will be released next Tuesday). Our projection is 2 bcf higher than the comparable figure in the ICE's latest report for EII-US EIA Financial Weekly Index, implying a potential "bearish surprise". Overall, at this point in time, we expect flows to storage to average 52 bcf over next three reports. Natural gas inventories deviation from five-year average is projected to decline from 14.6% today to 13.6% on April 28.

See the evolution of storage forecasts in the chart below. Notice, that we have been revising up our near-term storage estimates. Since March 31, the total for three reports went up from 125 bcf to 157 bcf. Please note that we update our forecasts every weekday.

Source: GeckoiCapital

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