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December 5th, 2013

Largest Ever November Withdrawal of Natural Gas

by Andrew Price, President & COO

The Energy Information Administration (EIA) reported the largest ever withdrawal of natural gas from storage during the month of November. The EIA report, issued at 10:30 this morning, indicated that US stockpiles of natural gas dropped 162 billion cubic feet (bcf) during the week ending November 29th. This leaves 3.614 trillion cubic feet (tcf) of working natural gas in storage. What does this mean for natural gas prices this winter?

By any measure this is a very big draw. Most analysts, as reported by Bloomberg, were anticipating a 146 to 150 bcf reduction in storage. The five-year average change for this week is a withdrawal of 41 bcf. Supplies fell by 62 bcf during this same week last year. Only three triple digit withdrawals have ever been reported since the EIA started tracking in 1994.

Despite the historically large withdrawal, stocks are well within the typical range for this time of year. See the storage chart from the EIA. At 3.614 tcf currently in storage, stocks are 5% below last year and 3% below the 5-year average.

Natural gas commodity futures, traded on the New York Mercantile Exchange (NYMEX), jumped sharply on the EIA report this morning. The January 2014 futures contract, which had been trading at about $4 per MMBtu before the EIA report, jumped 3% to $4.12 per MMBtu immediately following the report. This continues a run in winter NYMEX pricing dating back to the beginning of November 2013.

Whether the run-up in NYMEX pricing can be sustained depends greatly on how winter progresses. The West and Central US, both significant users of natural gas, are currently in a deep freeze with snow and freezing rain as far south as Texas. It looks like we may see another week or two of colder than normal weather which should keep upward pressure on winter NYMEX natural gas contracts in the near term.

Without sustained cold weather into January, however, it may be hard for NYMEX natural gas prices to push too much higher. New production of natural gas from the Marcellus shale deposit in the Northeast, as well as switching from natural gas to coal in the power generation sector, are two factors that should help keep a cap on prices. 

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