Natural Gas Market Tightness Indicators

Strategic Insights -

The natural gas market is showing signs of tightening, driven by recent storage withdrawals and bullish fundamentals. The April Henry Hub futures contract closing price of $2.300/MMBtu, along with the American Gas Association's (AGA) storage report indicating large withdrawals, suggests rising gas prices for the rest of the year. Industry players have shifted from expecting price drops due to a severe storage overhang to a more bullish outlook as the overhang has diminished.

Key Takeaways:

  • The Nymex April Henry Hub futures contract closing price of $2.300/MMBtu is a potentially good indicator of the underlying tightness in the natural gas market.
  • The storage surplus dipped below 200 Bcf, with only 194 Bcf more gas in storage than at the same time last year.
  • Total gas in storage is now 1,026 Bcf, or 32% full, with the eastern consuming and producing regions holding the greatest surpluses to last year.
  • Capacity holders may see another cut in the storage surplus this week, with a chance of a 26 Bcf or more withdrawal.
  • If this occurs, May Nymex prices may climb into the $2.50s or $2.60s, driven by colder weather in consuming regions.
  • Information on gas production increases or lack thereof may fuel a rally in gas prices.
  • Traders are expecting a warmer-than-normal summer, colder-than-normal winter, and an active hurricane season due to El Nino's influence.

Statistics:

  • The April 1997 Nymex contract closed at $1.805/MMBtu, while the March 1997 contract closed at $1.78/MMBtu.
  • The storage surplus dipped below 200 Bcf, with a current surplus of 194 Bcf more gas in storage than at the same time last year.
  • Total gas in storage is now 1,026 Bcf, or 32% full.
  • Capacity holders withdrew 78 Bcf, or 11.1 Bcfd, during the week ended March 20.
  • The eastern consuming and producing regions have surpluses of 122 Bcf and 65 Bcf, respectively, compared to last year.

Sources:

  • American Gas Association (AGA)
  • New York Mercantile Exchange (Nymex)
  • [TOD, 3-26-98, p.7]
  • [Source not explicitly mentioned, remove]