Natural gas prices are set to weaken to $2.50 per MMBTU or less unless there is strong winter heating demand in 2015, according to Bank of America-Merrill Lynch (BofAML).The process of storage normalisation was initiated last summer via record injection season but intensified over the winter. Within just two months,stocks have risen from record lows to 5-year normal levels and now sit 46% above last year. Indeed, withdrawals have been shy of the 5-year average for 8 out of the last 11 weeks. In some cases, the gap has been as wide as 90 bcf. Such a weak withdrawal season has put downward pressure not just on Henry Hub spot prices but the entire NYMEX forward curve.

BofAML has lowered its 2015 US nat gas price forecast to $2.85/MMBtu, from $3.90 prior, on ample inventories and production gains overwhelming demand increases in 2015.

Fundamentals look better than in 2012 even though prices are aligned to those levels but underlying fundamentals are different. "In 2012, storage numbers started the year 600 bcf above the 5-year average, a much weaker picture than the 70 bcf below average seen at the beginning of this year. On our estimates, the market may well enter spring with 1.66 tcf in the ground, in line with the 5-year average,yet far below the 2.47 tcf realized in 2012."

Under normal weather scenarios, BofAML see front-month NYMEX prices hit $2.25/MMBtu at the end of the second quarter.

BofAML further said in its report: On our balances, US natural gas prices will continue to stay low throughout the summer as ample inventories and high production put pressure on prices. Essentially, market balances will not be restored until record gas output finally breaks down towards the end of the year. New gas demand is coming through,but power demand cannot absorb all the new supply. Even the expansions in industrial and petrochemical gas demand (+0.9 bcf/d in 2015), are not material enough to eat into the oversupply, while the surge from LNG demand may not materialize before 2016.
Source: Bank of America-Merrill Lynch (BofAML)