Natural gas futures extend decline as warmer weather takes hold; Spot prices are falling

Natural gas futures fell for a fourth straight day on Friday as a warmer forecast and rebounding production put the week’s polar vortex firmly in the rearview mirror. Nymex February gas futures fell 17.8 cents to settle at $2.519/MMBtu.

At the first sight:

  • The warm-up begins at the end of January
  • Production is rising above 100 Bcf/d
  • Weekend cold strengthens the Southeast

Point gas NGI National avg. fell 25.5 cents to $3,885, with declines in all regions except the Southeast. According to Maxar’s Weather Desk, the inland Southeast and Midwest were expected to see the coldest temperatures over the weekend compared to seasonal averages. In contrast, temperatures in the west were expected to remain above normal, except in the interior northwest, the forecaster said.

However, futures markets were looking beyond the end of the cold. Weather models in Friday’s midday update further cemented the outlook for a warmer end of January and held warmer trends in early February across the northern states, NatGasWeather said.

Gas supply was expected to rebound against this coming drop in demand freezing that cut production to 90.9 Bcf/d last Tuesday. The main focus of the markets remained on how fast this recovery is coming.

Wood Mackenzie estimated production on Friday at 100.8 Bcf/d, still below the pace of around 106 Bcf/d in the first week of January.

EBW Analytics Group analyst Eli Rubin said on Friday that “the pace of the recovery from the production freeze will be decisive for natural gas prices” over the next 7 to 10 days. If production levels return to early January levels in the coming days, “as seems the most likely scenario, continued bearish pressure could send Nymex futures lower,” he said.

Rubin warned that there has been a slower recovery in recent years after severe freezes, such as in 2022, when a long-term production slump set the stage for the highest gas prices in 14 years.

The production loss was partially offset by a roughly 2 Bcf/d jump in Canadian gas imports and a slowdown in U.S. LNG exports.

Demand for feed gas for LNG exports fell to a low of around 9.3 Bcf/d last Tuesday after hovering around 15 Bcf/d on January 12. NGI US LNG Export Flow Tracker. Those levels had recovered to nearly 14 Bcf/d by Friday.

Storage drop?

The arrival of winter in January led to two consecutive triple-digit gas withdrawals from the Lower 48 in the working reservoir, and a third such occurrence is expected this week.

The first was a Selection of 140 Bcf for the week ending January. 5, which beat analysts’ estimates. next drawing 154 Bcf for the week ending January. 12 came a little lighter than expected. However, the last draw “was a lounge on the polar vortex update next Thursday,” analysts at The Schork Report said.

That’s because the recent brutal cold that strained the electricity grid and gas supplies in regions from the Upper Plains to Texas, that may have been enough to boost output by 300 Bcf or more in the week ending January. 19. The first estimates reported to Reuters for this week ranged between withdrawals of 180 Bcf to 349 Bcf, with a median of 288 Bcf.

Analysts at Mobius Risk Group said it is worth noting that the next printing of government storage could significantly reduce the excess gas in storage. In January, inventories stood at 3,182 Bcf. 12,320 Bcf above the five-year average and 350 Bcf above the previous year’s levels.

The EIA print scheduled for next Thursday is up against last year’s draw of 86 Bcf. That means a print north of 300 Bcf would shave more than 200 Bcf from year-ago levels.

“We are on the verge of year-over-year excess storage falling below 150 Bcf for the first time,” analysts at Mobius said. That would represent a reversal of surpluses over the past year from a peak of 585 Bcf about a month ago, analysts said.

Weather is not the only driver. Production levels remained top of mind for bearish market participants, almost to an “obsessive/compulsive state,” Mobius analysts said.

If output returns to near-record levels from early January, excess inventories could rise again if softer forecasts play out in February. Warm-up begins the last full week of January with a massive rise in temperatures for possibly one of the warmest late Januarys for more than 40 years.

Physical price snapshot

Cash prices fell in all regions except the Southeast on Friday.

The National Weather Service (NWS) said another wave of arctic air moved through the middle of the country on Thursday and was forecast to cross the entire East Coast by the weekend. While not forecast to be as cold as previous winter storms, this second round was expected to drop temperatures as far south as Missouri and Kansas, while 20 to 30 degrees below zero could be common on Sunday, the NWS said.

According to the NWS, lake-effect snowfall was expected downwind from the Great Lakes, and heavy snowfall was expected in Michigan and parts of Indiana, Ohio, Pennsylvania and New York.

The weekend frost was expected to spare the West. Above-average temperatures were in the forecast from the West Coast to the Rockies, the NWS said.

Friday’s declines were steepest in the Northwest, on a day when prices in the region jumped ahead of the weekend’s cold snap. About half of northeastern hubs pared those gains on Friday, reflecting a lack of risk premium for the freeze, which was not expected to threaten the power grid or gas infrastructure.

Algonquin City Gate down $2,045 dd to average $12,755. Gains were more muted in the region. Transco zone 6 outside NY rose 33.5 cents to average $9,010.

Elsewhere, the steepest declines were in West Texas/SE New Mexico and the mid-country. Permian El Paso fell 56.0 cents to $1,770. Chicago City Gate shed 51.0 cents to $2,560. Ventura in the Mid-Continent, it fell 47.5 cents to $2,635.

Alone as a gainer, the one Southeast Regional Avg. rose 1,485 cents to $6,150. Transco Zone 5 which includes a wide area from the Carolinas to Virginia rose $4,090 to $12,830.

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