RBN Energy: Warm Winter and Surging Production Push Gas Storage Surplus Higher (And Prices Lower).
As of the weekly EIA natural gas storage report due out today (Thursday) for the week ending February 5, 2016, the U.S. gas inventory surplus is likely to grow to near 600 Bcf above levels at the same time last year. Current weather forecasts suggest the surplus over 2015 will soar to near 800 Bcf by the end of February. With outright inventory levels already exceptionally high, this surplus growth kicks the market’s oversupply problem further down the futures curve – meaning prices could stay lower for longer. Today we look at the winter 2015-16 fundamentals leading to this surplus and what it means for the rest of 2016.
The gas market started this winter (November 2015 to March 2016) oversupplied, with a record high inventory and a surplus of nearly 400 Bcf versus the previous year. At the time a cold hard winter presented the best chance to correct the supply/demand imbalance through increased heating demand. But weather forecasters instead predicted an exceptionally warm winter due to the effects of El Nino. And sure enough, winter has been largely a no-show so far. Meanwhile, on the supply side, gas production has not given up any ground, and in fact, has even experienced another surge to record levels in recent weeks. This mixture of lower demand and higher supply has meant not as much gas has been withdrawn from storage to meet winter peak needs as usual this year. As a result, the storage surplus has continued to grow.