By: Heather Wine, Senior Risk Manager - Energy
4-Year price deciles Normal & Redistributed
Spot month gas prices fell to a 29 month low yesterday of $1.97 before rising more than 11% at one point during Wednesday’s session. The reversal was driven by news that one of the largest US gas producers would be taking rigs offline due to low prices and oversupplied conditions. Tomorrow’s expiring March contract ultimately settled 10.4 cents higher at $2.174.
The potential for colder weather next month further supported prices yesterday. Maxar's outlook for March now features widespread below normal temps from the West to the North Central US as well as in New England. Above normal readings will be confined to the SE. HDDs for the month rose by 50 from their last outlook to a total of 635 HDDs. In the near term, the next few days will feature near record cold in the West with above normal readings in the SE.
Today’s storage report is expected to exacerbate the current oversupply. Reuters is calling for a much lower than normal draw of 67 BCF for the week ended Feb 17. This would severely undercut the 5 yr avg draw of 177 BCF and fall well below last year’s pull of 138 BCF. If correct, gas in storage would total 2.199 TCF.
Prices are seeing further strength this morning as demand rises 4.3 BCF/day amid a 2.6 BCF/day increase in res/comm usage and a 2.7 BCF/day increase in power burn. Demand is poised to trend higher over the coming month as Freeport ramps production back up towards 2 BCF/day. Additionally, low gas prices are likely to induce coal to gas switching.
Chesapeake Energy will drop 3 of its 14 drilling rigs this year, leaving 2023 output below last year. They will cut 2 rigs in the Haynesville, 1 in Q1 2023 and 1 in Q3 2023 and will release 1 Marcellus rig in Q3 2023. Their scale back is anticipated to push Q2 thru Q4 production down to 3.4 BCF/day. Chesapeake’s breakeven on activity in these 2 regions in the next 5 years is $.207 with their base dividend breakeven at $2.40.
The spot March 23 natural gas contract closed higher on Wednesday following a brief drop under the 2.000 level for the 1st time since September 2020.
The March contract traded down to a 1.967 morning low but reversed back higher in midday trade finishing the session at 2.174, up .104.
Prices are down again today erasing most of yesterday’s gains. 1.967 is near term support followed by 1.790-1.800. Longer term support is the June 2020 25-year low at 1.440.
10 day moving average resistance is at 2.370 today.
A post-winter seasonal low has been set during the months of February or March during 6 out of the past 7 years. A breakout above the 10 day moving average should signal a low is finally in place.
Relative Strength Index – 30.82
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