Can natural gas inventories decline to 2014 low amid harsh winter?

Thanks to previous two weak winters, despite a very weak storage injection this year, the natural gas inventory reached a new all-time high this year. In the second week of November, inventory reached 4047 billion cubic feet, which is 213 billion cubic feet more than the storage in late 2013. During the 2013/14 drawdown period that was from November 2013 to April 2014, the natural gas inventory declined by a record amount to 824 billion cubic feet.

While this year’s winter forecast is similar to that of 2013/14, the real question for the natural gas prices is can the inventory decline to levels seen in that winter. In 20 weeks’ time, the inventory declined by 3100 billion cubic feet in the winter of 2013/14. The average rate of decline was 155 billion cubic feet. The biggest weekly drawdown for that year was 288 billion cubic feet.

Now, to reach the 2014 level, the inventory would have to decline by 3.22 trillion cubic feet in approximately 20 weeks, with an average rate 160 billion cubic feet per week. In the past two weeks, the total drawdown has been 94 billion cubic feet. It doesn’t look feasible at that point for the inventory to reach 2014 level; however, we would recommend a close watch on inventory figures over the next couple of weeks and on the weather.

The natural gas is currently trading at $3.5 per MMBtu.