Raymond James Energy Stat of the Week, published 1/22/2007.
Back in October, we forecasted that under normal weather conditions, winter storage should end at a relatively bullish 1,200 Bcf vs. the roughly 1,700 Bcf at the end of last winter. Unfortunately, the first half of winter has come in nearly 15% warmer than normal, causing over 350 Bcf less natural gas demand than we originally expected. As a result of this unseasonably warm weather (and reduced gas demand), the U.S. currently has about 350 Bcf more gas in storage than the same time last year. Because of this, the Street has become increasingly bearish with consensus now expecting to exit the winter season with a record 1,800-1,900 Bcf of gas in storage.
While the warm start to winter has caused us to change our original forecast, we still believe that winter gas storage will end substantially lower than the Street expectations. Specifically, we now think that the current (354Bcf) year-over-year gas storage surplus will be completely wiped out over the next three weeks and winter ending storage will end closer to 1,500 Bcf. Although this level of gas in storage is still well above (~300 Bcf) the ten-year average, it would roughly be 200 Bcf below last year and, more importantly, it would be 300 to 400 Bcf below the current market consensus. If we are right, this could significantly change the market's outlook for natural gas over the coming weeks.
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