The size of the storage withdrawal also indicates that as onshore U.S. production grows, well shut-ins during cold weather are playing a bigger role in disrupting output than hurricanes have in recent years, said Schork and Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York.
"Going into the winter, the market appeared convinced that the industry was amply supplied,¡± Viswanath said. ¡°Now, however, in the aftermath of the very cold weather and the resulting high demand and freeze-offs, these assumptions are possibly being tested."
Gas production has fallen 25 billion cubic feet since the first week of December, mainly in the Rockies and the Midcontinent region, said Luke Larsen, an analyst at LCI Energy Insight, an energy analysis and consulting company in El Paso, Texas. Daily output in the lower 48 states slid 2.7 percent to average 72.49 billion in the week ended Dec. 12.
This unexpectedly large withdrawal and its effect on inventories suggests that the oversupply situation which has depressed natural gas prices has come back to at least equilibrium. With prices above $4 a great deal more unconventional supply becomes economic, but suppliers are likely to want to see prices stabilise near this level before taking a risk on increasing output.
Natural gas has rallied impressively over the last month to test its high for the year near $4.40. A sustained move below $4.20 would be required to confirm resistance in this area and to delay potential for additional upside.
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