At the NYMEX, the price of the near-month contract for March delivery decreased $0.07, or 1.6 percent, during the report week, to $4.43 per MMBtu. The decrease occurred likely in response to expectations of a reprieve in extreme cold in consuming regions of the country, thus decreasing space-heating demand. While the current cold will likely result in large withdrawals from storage in EIA’s storage report next week, the current strength in supplies may suggest that the cold weather has not changed the fundamental outlook for the industry. The March 2011 contract is trading lower than the settlement price of the March contract in 2010. The March 2010 contracts expired at $4.82 per MMBtu, or 8.7 percent higher than the current contract price. The price of the 12-month strip, which is the average for futures contracts over the next 12 months, decreased during the report week by about 1 cent per MMBtu to $4.70 per MMBtu. In the strip, prices increase through January 2012. During the week, monthly prices decreased in consecutively smaller increments through next fall, but larger increments into and during the winter months. The highest-priced contract in the 12-month strip is for January 2012, which as of yesterday was priced at $5.12 per MMBtu.
Working natural gas in storage dropped to 2,353 Bcf as of Friday, January 28, according to EIA’s WNGSR(see Storage Figure). TThe 189 Bcf draw is much larger than the 5-year average draw for the week of 165 Bcf and particularly last year’s draw of just 111 Bcf for the report week. Stocks are now 69 Bcf below last year’s level and a mere 5 Bcf above the 5-year average.
The week’s draw marks the second week in a row that stocks have declined much more rapidly than last year.Last week’s year-over-year surplus became a significant deficit as a result of a second week in a row of very cold temperatures relative to last year. Despite significant year-over-year production growth, a frigid winter is forcing suppliers of residential and commercial consumers to draw heavily on working gas stocks for heating uses.
Temperatures were colder than normal and much colder than last year in the lower 48 States during the week ending January 27. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 30.1 degrees, 3.6 degrees colder than last week and the second coldest average temperature this winter (See Temperature Maps and Data). This compares to a 5-year average temperature of 33.4 degrees and last year’s temperature of 38.9 degrees for the report week. Relatively warm weather in the West was offset by colder-than-normal weather in most of the rest of the country for the second week in a row, especially in New England, which was 9.3 degrees colder than normal. Heating degree days were over 32 percent higher nationwide this week compared to the same week last year.