Natural gas futures move higher as forecasts tease February cooldown; Cash slides

Natural gas futures advanced for a second day on Wednesday, supported by oversold technical levels and an “alarm-inducing” forecast for the return of cold air in the second half of February.

At the first sight:

  • Nymex brings another profit
  • National avg. it will drop around $2
  • Lower output 48 at 104.6 Bcf/d

Nymex March gas futures rose 2.3 cents to settle at $2.100/MMBtu. It touched an overnight low of $2,037 and a high of $2,158 before noon.

Point gas NGI National avg. it fell 16.0 cents the next day to $2,085, its lowest level since late December.

The Nymex first-month series is more than $1 off the January highs that preceded the Arctic blast. Since then the weather conditions have eased and set up for what could be exceptionally warm first half of February. However, this trend could reverse in the second half of the month.

On Wednesday, analysts pointed to bullish technical signals that have made traders reluctant to include short positions and cooler long-term forecasts as ingredients for a rebound.

“Meteorologists express confidence in a shift toward a cooler back half of February that persists just beyond” the storage week ending in February. 15, said EBW Analytics Group analyst Eli Rubin. “Shorts may also become less aggressive as the risk-reward ratio decreases as prices approach $2 in mid-winter.”

In terms of overall fundamentals, Lower 48 production was estimated at 104.6 Bcf/d on Wednesday, down day-to-day from 105.0 Bcf/d, Wood Mackenzie said. Freeport LNG partial outage cut its utilization rate in half and kept U.S. liquefied natural gas flows at around 14 Bcf/d on Wednesday, according to NGI’s LNG Export Flow Tracker.

Meanwhile, the market shrugged off Tuesday night’s explosion at the DCP Midstream LP pipeline in Oklahoma. The system was not located near major interstate supply routes.

Is polar air coming back?

While much of the country is forecast to be bathed in unseasonably warm temperatures for the first two weeks of February, models have begun to increase the likelihood that the weather could cool dramatically by the end of the month.

“I’m issuing a polar air alert here for the United States in mid-February,” independent meteorologist Corey Lefkof said on the Enelyst online platform.

The pattern looked similar to the setup for January, which could lead to a sustained extension of above-normal heating demand, Lefkof said. However, the source and size of the cold air remains a question, he added.

NatGasWeather said midday model updates maintained forecasts of cooler air moving in by the middle of the month, but cautioned against a longer-term outlook.

“Natural gas markets are likely expecting a cooler February. 15-20, although we have to be careful not to change the weather data with warmer weather as it is quite far away and where large changes are likely,” NatGasWeather reports.

Storage estimates

Thursday’s report from the U.S. Energy Information Administration (EIA) is expected to post a fourth consecutive triple-digit increase. It comes as a result of massive 326 selection Bcf for the week ending January. 19, the third biggest plotted in 2010 EIA records.

For Thursday’s press, NGI modeled a draw of 190 Bcf for the week ending in January. 26. Estimates provided to Reuters ranged from 166 Bcf to 207 Bcf, with a median of 199 Bcf. A Bloomberg survey produced withdrawal estimates ranging from 183 Bcf to 209 Bcf, with a median of 202 Bcf. The five-year average for the period is a draw of 185 Bcf, while the year-ago print was 141 Bcf.

Total Lower 48 working gas in underground storage was 2,856 Bcf as of January. 19, or 142 Bcf above the five-year average. Surpluses could climb back above 300 Bcf over the next three prints, which take into account mild weather last week and warmer conditions over the next two weeks, NatGasWeather said.

Cash prices are falling

Spot gas prices fell Wednesday ahead of a forecast of warmer-than-normal temperatures for much of the Lower 48. The only areas expected to remain somewhat cooler than average Thursday were parts of California and the Southeast, according to NatGasWeather data.

in the northeast, Transco zone 6 outside NY down 32.5 cents day/day to average $1,845. in the Southeast, Florida Gas Zone 3 shed 29.5 cents to $2,335.

in the midwest, Chicago City Gate shaved 7.0 cents to $1,900. Almost all centers were weaker in Texas, incl Wowdown 17.0 cents to $1,400.

Gains were sparse and spread across the Rockies, Appalachia, and California. SoCal City Gate added 7.0 cents to $2,865.

A Pacific storm bringing torrential rain and strong winds to the West Coast could bring colder risks to California on Thursday, Maxar’s Weather Desk said. Meanwhile, the warming trend in the central states was expected to spread to the eastern half of the country.

Temperatures were forecast to be 15-30 degrees above average from the Plains to the upper and middle Mississippi Valley, the National Weather Service said. Parts of New York and New England, as well as higher elevations in central Appalachia, could see snow through Thursday.

Wednesday’s force majeure by ETC Tiger Pipeline LLC for its Chatham compressor station in North Louisiana had no effect on gas flows, according to Wood Mackenzie analyst Ricardo Falcon-Bautista. According to Wood Mackenzie data, supplies were slightly below the 2,000,000 MMBtu/day limit set by subsidiary Energy Transfer LP. Deliveries short of the limit largely reflected a downward correction in heating demand caused by softening temperatures since the cold snap in mid-January, Falcon-Bautista said.

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