Natural gas futures break to fresh lows amid storage overhang; Cash Retreats

Nymex March natural gas futures ended 5.0 cents lower on Thursday as a widely expected print from the US Energy Information Administration (EIA) did little to quell bearish sentiment.

At the first sight:

  • Futures fall 5.0 cents
  • The repository offers no surprises
  • Spot the gas according to the weather

The front-month contract settled at $1,917/MMBtu after trading below a three-year low of $1,867.

Point gas NGI National avg. it also fell 16.0 cents to $1,760 amid regional warming ahead of what could be another blast of arctic cold.

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EIA reported natural gas warehouse collection of 75 Bcf for the week ending February. 2. Results in line with forecasts.

NGI struck with its model targeting a 75 Bcf withdrawal, while a Reuters poll of 14 analysts gave a median withdrawal estimate of 76 Bcf, with responses ranging from 65 Bcf to 100 Bcf withdrawals.

Pumping triggered a recent string of triple-digit withdrawals, culminating in a 197 Bcf draw reported for the week ending in January. 26.

February natural gas stocks. 2 was 2,584 Bcf, which is 248 Bcf more than the five-year average and 187 Bcf more than the same period last year.

Analysts at Gelber & Associates said: “As the report did not produce any unexpected upside changes in storage, the recent downtrend continued following the release of the report.”

As the market awaits the next EIA report for the week ending February. 9, expectations of another small drawdown to further widen the inventory overhang added further price pressure.

Early Reuters estimates ranged from withdrawals of 50 Bcf to 87 Bcf, with an average decline of 75 Bcf. That compares with withdrawals of about 117 Bcf during the same week last year and a five-year average decline of about 149 Bcf.

Analysts at Gelber said production also helped bearish momentum.

Lower 48 Natural gas production was 106.3 Bcf/d on Thursday, up from Wednesday’s revised 107.7 Bcf/d, according to Wood Mackenzie data.

Demand increases the pressure

At the same time, Wood Mackenzie data showed that demand in the residential and commercial sector (res/comm) was lower day-to-day from 36.7 Bcf/d to 33.0 Bcf/d.

“Natural gas prices continue to fall on concerns about rising production at a time when demand is weak and causing a selloff,” said Price Futures Group senior analyst Phil Flynn.

Analysts at NatGasWeather agreed. They said “too warm” weather in the US next week contributed to the sell-off.

Midday updated weather forecasts called for very low national demand to continue into early next week, although several weather systems brought areas of rain and snow.

“The problem is that there are very few sub-freezing temperatures over the United States until early next week, which is a rarity for early February and why the heating degree days are well below normal,” NatGasWeather said.

Demand would increase to stronger levels with cooler temperatures forecast to push into the Northern Rockies and Northern Plains on Saturday, bringing highs of 10-30 degrees, according to the U.S. weather model. The cold would spread to the south and east late next week, but only the Midwest and Northeast will be “relatively cool,” NatGasWeather said.

Overall, the company said the upcoming pattern remained too warm/red throughout February. 13-14, but still has a stronger demand for February. 15-22.

Based on weather trends over the next two weeks, natural gas inventory surpluses would expand above 350 Bcf, and it would take “exceptionally cold” weather in late February and early March to reduce that significantly, NatGasWeather said.

Instead, near-seasonal draws are expected in late February and early March, the firm said, suggesting that surpluses will remain above 300 Bcf in the coming weeks.

“It’s clear the bears are in control and the bulls would need to move back above $2 to regain momentum,” NatGasWeather said.

Cash withdrawn below

Natural gas prices moved for delivery to major hubs across the country were pushed lower on Friday by expected easing of demand with milder weather heading into the weekend.

Rocky Mountain prices fell on Thursday after holding up against a broader downtrend midweek. Cheyenne Hub fell 12.5 cents day/day to average $1.525, while a similar loss at KRGT Rec Pool raised the average to $2,475.

California also joined the retreat after prices held higher in the previous session. PG&E Citygate prices were down 6.5 cents at $3,470. Smart moved 12.0 cents lower day/day to $2.520 in lighter trade. The northeast again led the retreat Northeast Regional Avg. fell 40.0 cents to $2,050.

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