Natural gas futures retreat after EIA in-line print surges surplus; Cash traded below

Natural gas futures traded lower on Thursday after modest storage results confirmed seasonally weak demand but no positive surprises for recent production cuts.

At the first sight:

  • EIA reports 40 Bcf drawdown
  • Output steady at 101.5 Bcf/d
  • The Northwest will cool off over the weekend

Nymex April gas futures settled at $1.818/MMBtu, down 11.1 cents day-to-day.

Point gas NGI National avg. fell 10.0 cents to $1,470 as prices fell in most regions.

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Tea warmest US winter on record has curbed demand for natural gas this heating season, a trend that was exacerbated in many parts of the country by the early departure of Old Man Winter last month.

Milder weather led to leaner storage readings from the U.S. Energy Information Administration (EIA). Latest print, a withdrawal of natural gas 40 Bcf from storage for the week ending March 1, it missed expectations but fell short of the norm for this time of year.

Prior to the report, NGI had modeled a draw of 37 Bcf. That compares with a five-year average drawdown of 93 Bcf per week and a decline of 72 Bcf from a year ago.

“The number was bearish and the market sold off, so it’s not surprising,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI. “The market is generally bearish, although we have had a bit of a rally in the last few days.”

Natural gas futures then went up for two days EQT Corp. on Monday it announced a 1 Bcf/d production cut for March. The move was similar to the February following Chesapeake Energy Corp. he said it would slow the completion of wells and drilling.

“The decline in production recorded in March more than offset the low demand caused by unusually mild temperatures,” Wood Mackenzie analyst Eric McGuire said.

Wood Mackenzie estimates put production at 101.5 Bcf/d. That’s about 2 Bcf/d less than the previous 30-day average and 2.7 Bcf/d less than a year earlier. Much of the decline has come to the northeast and more recently from the Permian Basin where the supply was wavy pipe dropouts.

The combined cuts by Chesapeake and EQT total “more than 1.5 Bcf/d through March,” NatGasWeather said. “It is clear that lighter production is needed to reduce the massive surpluses. Although they also need the weather to cooperate.”

Weather forecasts remained mild for early March as “an unusually warm ridge will return to dominate much of the southern and eastern United States by next week” with highs in the 50s to 80s “for a return to very weak demand,” according to NatGasWeather.

However, weather models continued to point to cooler weather for the northern half of the country later in the month, which could push demand close to seasonal levels, the forecaster said.

Excess swells

The latest inventory print pushed the excess gas in operating storage to 551 Bcf, or 31% above the five-year average. Compared to the previous year, the surplus was 280 Bcf, little in the East.

About 208 Bcf of the year-ago surplus is in the Mountain and Pacific regions, with the rest in the Midwest and South Central, according to Wood Mackenzie’s McGuire. “The East is the only region that recorded a deficit last year,” he said.

These strong inventories in the West acted as a softening influence on prices in Rocky Mountains and Pacific region.

The east-west divide was reflected in the latest weekly storage trends, with downloads largely confined to the eastern half of the country.

The East reported a draw of 31 Bcf and the Midwest 25 Bcf. However, South Central inventories increased by 14 Bcf, with increases of 4 Bcf in non-salt facilities and 10 Bcf in salt. Pacific stocks rose 2 Bcf. Shares in the mountain areas stagnated.

Looking ahead to the week ending March 8, mild weather was expected to keep gas demand low, raising the possibility of an overall injection for Lower 48 stocks.

Early estimates presented to Reuters ranged between a withdrawal of 14 Bcf and an injection of 20 Bcf, with an average increase of 3 Bcf. That compares with a draw of 65 Bcf a year earlier and a five-year average decline of 87 Bcf.

If the next print shows the total injection, it would be the second-oldest build in history, behind the week ending in February. 24, 2017, McGuire said.

NatGasWeather said storage surpluses could rise to 650-700 Bcf above the five-year average over the next few EIA prints.

LNG nebulizers

Demand for LNG feed gas on the Gulf Coast has exploded this week amid fog that reduces channel visibility for pilots, terminal outages and rising temperatures.

Incoming gas volumes for LNG were around 13.6 Bcf/d on Thursday, according to NGI. US LNG Export Tracker. That’s up from about 12.4 Bcf/d Tuesday, when flows to Sabine Pass LNG fell to about 4 Bcf/d. Terminal volumes rebounded to levels around 4.8 Bcf/d on Wednesday and Thursday.

Meanwhile, the third train at the Freeport LNG terminal will remain offline until next week when the repairs are expected to be completed.

“Another factor that will start to affect the efficiency of gas-powered terminals going forward is higher ambient temperatures,” Criterion Research’s James Bevan, vice president of research, told Enelyst’s online platform.

As temperatures on the Gulf Coast rise above 65 degrees, there is a steady decline in overall terminal performance, he said. Daytime highs in Houston have moved into the upper 70s this week.

Clearer skies this weekend and cooler temperatures next week should help boost feedstock volumes, Bevan said.

Cash Falls Back

Next-day cash prices fell in almost all regions on Thursday as warm temperatures in early March kept demand low.

Northeast nodes led the national average below. Tenn Zone 6 200L lost 42.0 cents day/day to average $1,635 a Algonquin City Gate fell 34.0 cents to $1,610.

in California, SoCal City Gate fell 25.5 cents to $2,270. in Appalachia, Texas Eastern M-2, 30 Receipt shed 7.5 cents to $1,365. The Rockies posted modest gains, but overall most resorts fell, including the most actively traded Cheyenne Hubdown 6.5 cents to $1,415.

West Texas, which fell on trend, raised prices the next day. But it wasn’t by much as prices in the region were weighed down by a supply glut caused by maintenance outages at Whistler Pipeline and Permian Highway Pipeline LLC. Wow gained 4.0 cents to average 25.0 cents.

Bulls in the physical market were unlikely to get much help from the weather over the weekend.

Maxar’s Weather Desk called for above-normal temperatures for demand centers in the eastern two-thirds of the Lower 48 for the rest of the week. Cooler conditions were forecast for parts of the Rockies and Northwest over the weekend.

Cold fronts were expected to bring cooler temperatures to the central part of the country on Friday, with highs dropping into the 40s and 50s in the western plains, according to the National Weather Service. The northern plains could see highs in the upper 30s and 40s. Temperatures are forecast to remain below average in the West, with 30s and 40s in the Northwest and Great Basin, 50s and 60s in California, and 60s and 70s in the Southwest.

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