The theme in energy markets this winter: volatility. Daily swings of 5-15% in the price of the Henry Hub prompt month natural gas NYMEX contract have become commonplace. In the second half of 2021, we saw gas and power prices across the U.S. rise dramatically as demand significantly outpaced supply. With record amounts of gas being exported internationally, the concern was that we wouldn’t have adequate domestic supply in the event of a colder-than-normal winter. From a weather standpoint, that fear has been realized.
After one of the warmest Decembers in the last decade, we had the coldest January since the 2014 Polar Vortex. The Energy Information Administration (EIA) reported on Thursday that storage levels dropped by a massive -222 Bcf for the week ending February 4th. This week’s report follows the largest withdrawal of this winter, -268 Bcf. The current natural gas storage inventory is 9.3% below the five-year average. Large withdrawals of natural gas from storage are expected to continue in the coming weeks meaning that we will likely exit this winter with significantly less gas in storage than a year prior and the 5-year average. On the supply side, production is still about 1 Bcf per day below December levels due to weather-related freeze offs. Forecasts for the remainder of February remain mixed at the moment. Our view is that volatility is likely to remain for the next couple weeks as short-term forecasts shift. We then should start to see a market pullback as focus shifts toward the spring and milder weather. For those organizations with supply contracts expiring in the next 12-18 months, we strongly recommend getting into a position where a purchasing decision can be acted upon in the next month.
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