Gloves Come Off

Gas Bulls: Have You Looked Outside?

A freakishly mild winter has led to an inventory buildup.

Take it from me that it has been unseasonably warm in New York. In the past week, I've strolled along Manhattan's High Line park in a tee-shirt, noticed audacious daffodil shoots in my front garden, and generally had more use for my shades than my scarf.

Forget the anecdotes, though; try the data.

The National Oceanic and Atmospheric Administration calculates "Heating Degree Days" to measure how cold it is (see this for an explanation). The higher the HDD reading, the colder it is. Here's how this winter in the U.S. compares with the long-run average of 1972 through 2015 and the average for the past five years:

You Can Leave Your Hat Off

Compared to both short- and long-term averages, this is an exceptionally mild winter for the U.S. as a whole

Source: Bloomberg, NOAA

Note: Averages are for 1972-2015 and 2011-2015. February data for this winter calculated from NOAA's weekly readings and latest forecast.

All of which neatly teed up Thursday's bombshell in the natural gas market. The Energy Information Administration reported that, in the week ending February 24, the amount of gas in storage went up by seven billion cubic feet.

In case you missed it, I put that "up" in italics because this isn't normal. Generally, we pump gas into storage between April and mid-November in preparation for winter and then draw those stocks down from November through March as we fire up our boilers to keep warm. Again, here are some data to show how anomalous this winter is:

Spot The Difference

Gas going into storage in late February just doesn't happen -- except this year it did

Source: Energy Information Administration

Note: Data show change in U.S. natural gas in storage for week corresponding to the week ending February 24, 2017.


Off The Beaten Path

Gas inventories this year are deviating significantly from the usual trajectory

Source: Energy Information Administration

That natural gas prices barely budged on this news on Thursday speaks to two things. First, at about $2.80 per million British thermal units, they have already fallen by almost 30 percent from their December peak of almost $4. Second, natural gas supply has been falling. In December, it was running 2.6 billion cubic feet a day lower, year over year. This offers some hope that, if the weather returns to normal, bloated inventories will start to drop again.

Hoping the weather will play nice is, as your financial advisor might tell you, not the surest of investment strategies. And bigger problems loom for gas bulls.

While supply has been coming down, the number of rigs drilling for gas has started to creep back up. In absolute terms, 151 rigs is tiny (there were more than 1,600 running in 2008) but that is almost double the number that were operating in August.

More importantly, the revival of oil drilling -- helped along by the OPEC-inspired price rally -- should also add to gas supply, as the two often go hand in hand. Analysts at Sanford C. Bernstein estimate such "associated gas" supply could rise by roughly five billion cubic feet per day by the end of 2017 if rigs keep starting up at the current pace.

And on roughly the same timetable, several new pipelines are due to start up, unleashing gas from Appalachia on the wider U.S. market, putting further pressure on benchmark prices.

Still, it's a lovely day for a walk.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Liam Denning in New York at

    To contact the editor responsible for this story:
    Mark Gongloff at

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