NATURAL GAS INVENTORY (Week Ended 12/26/14)
Current: 3,220 Bcf
Actual Injection/(Withdrawal): (26) Bcf
Economist Average Estimate: (35) Bcf
Previous: 3,246 Bcf
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ANALYST COMMENTARY
UBS Investment Research (12.31.14)
Storage withdrawal below expectations
Storage fell 26 Bcf, below consensus expectations of 32 Bcf and the UBSe range of a 35-45 Bcf withdrawal. This week’s withdrawal is below both the 97 Bcf withdrawal in the comparable week last year and the 5-year average of a 114 Bcf withdrawal. Inventories decreased to 3,220 Bcf, widening the surplus vs. last year to 246 Bcf and narrowing the deficit vs. the 5-year average to 74 Bcf.
Weather last week was warmer than 2013 and the 5-year average
Last week’s weather was 15% and 18% warmer than the comparable week last year and the 5-year average, respectively. Since September, weather has been 10% and 4% warmer than last year and the 5-year average, respectively. Approximately 61% of HDDs remain ahead of us.
Forecast a 115-125 Bcf withdrawal next week
We forecast a 115-125 Bcf withdrawal next week, compared to 2013’s 157 Bcf withdrawal and the 5-year average of a 149 Bcf withdrawal. Over the last month, the weather-adjusted S/D has been 4.3 Bcfd oversupplied vs. last year and 3.5 Bcfd oversupplied vs. 5-year average. Given the current weather-adjusted oversupply, we forecast storage to exit the winter at 1.9 Tcf (above the 5-year average of 1.71 Tcf).
E&Ps discounting long-term prices of $4.00/Mcf This compares to the 2015 & long-dated (2018) futures curves of $3.11/MMBtu and $4.00/MMBtu. Our top E&P picks are: APC, CHK, EOG, EPE, PXD, and WLL.
Analysis
Last week’s withdrawal implies that the weather-adjusted S/D balance loosened ~1.85 Bcfd WoW. We estimate the weather-adjusted S/D has been 4.3 Bcfd oversupplied vs. last year and 3.5 Bcfd oversupplied vs. 5-year average over the last 4 weeks. The 2014 storage injection season set a record injection of 2.8 Tcf, exceeding the previous record of a 2.5 Tcf injection in 2003. And while storage is entering the winter ~0.3 Tcf below normal, the weather-adjusted S/D balance is ~3 Bcfd oversupplied because of robust production growth. Assuming normal weather, storage is tracking to enter the winter of 2015-16 well above 4 Tcf. Consequently, we expect downward pressure on the 2015 natural gas strip to tighten the S/D balance. We forecast a 115-125 Bcf withdrawal for next week. We forecast natural gas prices will average $4.45/MMBtu in 2014 and $3.75/MMBtu in 2015.
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