Production Cuts
EQT, a significant Appalachian drilling company, reduced its output by 1 billion cubic feet per day in late February, a cut that represents about 15% of its total production. This reduction is set to continue throughout March, with a re-evaluation planned thereafter. This move followed a similar strategy by Chesapeake, another key player in the industry. Since February 20, when natural gas prices were at their lowest in decades when adjusted for inflation, prices have risen by approximately 25%.
NatGasWeather Outlook
The weather over the weekend and the last 24 hours trended warmer, but despite this, natural gas prices opened higher this week due to EQT’s announcement of reduced U.S. production. The market is now weighing the impact of reduced production against bearish weather patterns. Current forecasts indicate very light national demand for the next 13 days, with a return to seasonal norms around March 18-19. The weather will be mostly mild in the central, southern, and eastern U.S., leading to low demand, with a slight increase expected next weekend.
Implications of Production Cuts and Weather
The market anticipates that production curbs will help support prices, as mild weather forecasts suggest limited demand, which might constrain inventory surpluses. However, these gains might be capped, as the impact of production cuts on nearby storage levels is expected to be minimal. The upcoming EIA storage report on Thursday is likely to exert pressure on natural gas gains, with predictions of a minor drawdown or possibly even a build in storage.
Short-Term Forecast
In the short term, natural gas markets might face downward pressure as we approach Thursday’s storage report. The balancing act between reduced production and mild weather-induced low demand, coupled with storage trends, suggests a bearish outlook post the EIA storage report release.
