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Natural Gas Prices Fall To 3 Month Lows On Disappointing Inventory Draw

LPG Shell

Natural gas has fallen to a new three-month low thanks to lower-than-expected draws on storage, prompting the Wall Street Journal to report that the coming months may see bearish oversupply.

The Energy Information Administration (EIA) reported yesterday that natural gas in storage in the country fell by 2.445 trillion cu ft in the week to February 10, down by 114 billion cu ft from the previous week and at the lowest for the last three months.

Analysts polled by S&P Platts had a consensus forecast for a draw of 126 billion cu ft, citing the unusually warm weather across most of the country. A Reuters survey expected storage to be down by 104-137 Bcf.

The draw was smaller than in the preceding week, when it stood at 152 billion cu ft, Investor.com recalls, and also smaller than the decline a year earlier, when it was 163 billion cu ft. The five-year weekly average for gas inventories was a decline of 156 billion cu ft.

Earlier this week, Platts Analytics noted that the weather has been unseasonably warm since the start of 2017, dampening demand for heating and hence for natural gas. The prompt month contract for gas is now 90 percent below the peak level reached in late December last year. After the EIA’s report, gas futures on Nymex shed US$0.044, to reach US$2.881 per million British thermal units. Related: Can Saudi Arabia Carry OPEC Through Spring?

This year, analyst Samer Mosis wrote in the Platts report, natural gas production in the U.S. is seen rising 1 percent over 2016, which may spell trouble for gas in storage. According to Mosis, working gas in storage is seen rising slightly, to 3.4 trillion cu ft at the end of the so-called injection season, in the summer. This would be 12 percent below the level for 2016 and 5 percent lower than the five-year average.

At the same time, there has been an increase in gas drilling, the report also noted. In the last quarter of 2016, gas drilling was up 16 percent on average across the shale patch, with the Marcellus play topping the list with growth of 27 percent.

By Irina Slav for Oilprice.com

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