*Inventory report schedule during the holidays:
API report will be released at 4:30 pm EST Thursday Dec. 27 and Jan. 3
EIA petroleum report will be released at 11 a.m. EST Friday Dec. 28 and Jan. 4
EIA natural gas report will be released at 10:30 a.m. EST Friday Dec. 28 and Jan. 4
Natural Gas Outlook
Monday's trade fell sharply and in stark contrast to the strong rally that was witnessed on Thursday. The focus was on forecasts for temperatures that did not show any more cold than what was seen on Friday, and actually warmed slightly. The market appears to be getting a bit unnerved that there aren't any cold spells in forecasts which currently extend out to early-Jan. Technical pressure was also provided by Friday's bearish spinning top reversal pattern made on the candlestick chart. The reversal peaked at $3.508 and was extremely close to resistance from the Dec 5th low at $3.507. Friday's COT data showed non-commercials -10,267 and managed money -15,844. Managed money is -109,000 since a peak just 10 weeks ago. It's a net short 65,000 now, and has another 45,000 contracts to go before it reaches the March low of around 110,000 net short.
There wasn't much news on Monday except for Chinese production of gas increasing 11.4% on the year. Imports were +22.5%. The country's demand for gas is still growing sharply, but we wonder whether U.S. exports will be approved and facilities built in time to capitalize on it. The longer-term future for natural gas prices may partly hinge on how fast the Chinese can ramp up their production infrastructure. Meanwhile, the near-term indications in the U.S. show that production and consumption are still fairly matched. The EIA has reported that U.S. production in 2012 is +4.6% over 2011 levels while demand is +4.7%. The 2013 forecast shows supply +0.6% and demand -0.3%. Additionally, it's 2013 forecast has shown growth in supply estimates through the year going from -1.7% in its January report to +0.5% in its November report. Demand was initially projected to be -0.8% and is now -0.4%.
These factors suggest that pressure may continue to be applied to the gas market, and prices in the February futures could fall toward the Dec 14th low at $3.26. A break of that level is possible and would set up for a retest of the Sep 10th low at $3.20. Slightly above both levels is the 100-day MA on the continuation chart at $3.27.
Upcoming Energy Events
Thu - API Inventories (4:30pm EST)
Fri - Natural Gas Inventories (10:30am EST)
Fri - EIA Weekly Oil Inventories (11:00am EST)
Jan 16th - Iran-IAEA Meeting
May 31st - OPEC Meeting
EIA Inventory Preview
This week's inventory report may show a decline of 1.8 MB in our view, which would be slightly greater than the 1.1 MB drop in the five-year average. Some of the underlying components from last week showed characteristics that would be associated with larger declines than the 1.0 MB reported last week and could add pressure. Refinery inputs took an additional 1.4 MB last week which could add pressure to this week as well. Consumer demand surged 1.13 mb/d or about 7.9 MB over the course of the week, and that could be replenished through higher refinery utilization this week. Oil production may add to inventories after it increased to the highest level since Jan 28th '94 last week. Imports have been relatively high compared to recent history and could contribute to inventories too. Imports have averaged 8.31 mb/d in the last four weeks, which compares to 7.89 mb/d in the previous four-week period.
Despite an increase in gasoline exports last week, we expect gasoline inventories to rise 1.0 MB this week due to higher refinery output. Demand has been trending lower since mid-Nov and shouldn't pressure inventories much. Distillate inventories could fall 1.0 MB this week due to last week's 714 kb/d surge in demand. There can be a lag with these numbers from time to time, as last week's inventories were down only 1.1 MB despite the surge in demand.
Natural gas inventories are expected to fall 86 bcf compared to last week's 82 bcf decline. Temperatures in population-weighted consumption areas were relatively close to the previous week's, with 86-99 heating degree days observed.
*The API convergence figures are the amounts that EIA data need to change in order to match the previous day's API figures