Natural gas futures rose for a second day Wednesday, supported by still-mild weather forecasts shedding some of their spring-like warmth and a burst of technical momentum across the forward curve.
At A Glance:
- Plus-300 Bcf storage draw expected
- Forecast remains warmest in 45 years
- Production rises to 103 Bcf/d
Building on a 3.1-cent gain Tuesday, the February Nymex gas futures contract jumped 19.1 cents to settle at $2.641/MMBtu. It was the contract’s biggest gain since Jan. 12, when markets rocketed higher on the eve of the winter’s coldest Arctic blast. Gains were less pronounced in the soon-to-be front month March contract, up 9.5 cents to $2.262.
NGI’s Spot Gas National Avg. rose 13.0 cents to an average $2.375, ending a three-day slide.
The prompt month’s Tuesday lows had “formed a bullish double-bottom technical pattern,” EBW Analytics Group analyst Eli Rubin said. By Wednesday morning, the contract had rebounded as much as 33.6 cents above those lows. Upward momentum was reinforced by colder weather model runs adding back 11 Bcf of gas demand and lingering production losses of 2.0-2.5 Bcf/d from freeze-offs, Rubin said.
Analysts at Mobius Risk Group observed that the bid in Tuesday’s rebound first appeared in longer-dated tenors, “which had been plagued by the broader market sell-off when weather forecasts abruptly flipped to record setting mild weather.” Leading gains were forward prices for 2025, when robust LNG export growth is expected to add significant price support.
Lower 48 gas production narrowed its gap to early-January levels of around 105-106 Bcf/d, with Wednesday at an estimated 103.0 Bcf/d, Wood Mackenzie said. The firm also revised Tuesday higher at 102.6 Bcf.
Both major weather models trended warmer into Wednesday, a shift that NatGasWeather said was “no surprise” given recent weather data “couldn’t be much more bearish.” The colder shift “could be slightly aiding gains, although not likely by much since” the forecast for the Jan. 24-Feb. 7 period remains one of the warmest of the past 45 years, the firm said.
Weather models showed the potential for colder systems into mid-February, but their severity could be moderated, making it likely the weather could stick closer to seasonal levels, NatGasWeather said.
Feed gas demand for U.S. liquefied natural gas exports held around 14 Bcf/d for a second day after dipping to around 13.25 Bcf/d Monday, according to NGI’s U.S. LNG Export Flow Tracker.
The market rally came amid a report by the New York Times that authorization of Venture Global LNG Inc.’s CP2 project could be delayed after a directive from the Biden administration to study its climate impacts. A potential delay of CP2 approvals has been the subject of speculation for months.
Storage Estimates
Last week’s polar vortex has one more parting shot for markets in the form of the U.S. Energy Information Administration’s (EIA) storage report Thursday that could rival records.
The withdrawal print for the week ended Jan. 19 potentially could be the largest since February 2021, driven by a surge in demand above 164 Bcf/d (including exports) during the peak of the storm and the production freeze-offs, Gelber & Associates analysts said.
NGI has modeled a 320 Bcf withdrawal for the period. Draw estimates submitted to Reuters ranged from 311 Bcf to 340 Bcf, with a median of 320 Bcf. A Bloomberg survey drew withdrawal estimates from 295 Bcf to 341 Bcf, with a median of 318 Bcf.
The analyst views exceed the five-year average decrease of 148 Bcf and a year-earlier decline of 86 Bcf. The highest pulls recorded are 359 Bcf in 2018 and 338 Bcf in 2021, according to EIA records back to 2010.
But while the upcoming draw is expected to be enormous, the range of estimates is wide, creating more room for the print to surprise.
The print “is subject to widespread uncertainty” after the disruptions last week that included “75 Bcf of supply freeze-offs, sinking LNG and opaque industrial demand outages as physical prices spiked,” EBW’s Rubin said.
A large pull reported Thursday “should support prices” but one interesting trend this season has been for “some pretty big misses on the estimates for withdrawals,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI. The recent misses of 10-20 Bcf were kind of unusual, but those types of misses can jar the market, he said.
“If the consensus is 320 Bcf and it comes in at 340 Bcf, then it’ll give the market a boost,” Saal said, “but if it comes in at 290 Bcf, even though that’s a big number, they’ll probably smash it.”
The Thursday print comes on the heels of weekly declines of 140 Bcf and 154 Bcf. The last draw cut inventories to 3,182 Bcf, or 350 Bcf above year-earlier levels. If Thursday’s draw meets expectations, it could cut the surplus to its lowest level in a year.
Spot Prices Pop
Physical spot prices rose Wednesday, led higher by Texas and Louisiana where heavy rains and flooding are forecast.
A deluge of rain was expected to hit the Gulf states from East Texas into Louisiana and northeast to Tennessee from Wednesday into Thursday, according to Accuweather. Flooding was possible with some rain totals exceeding 4 inches by the end of the week, the forecaster said.
The heavy rains are part of a system expected to blanket much of the East in rain and dramatically warmer temperatures.
“It will feel more like the middle of spring rather than the heart of winter for millions of people across the eastern United States, with temperatures approaching record territory before the end of the week,” Accuweather meteorologist Alex Sosnowski said.
Lows at night would only reach the mid-30s in northern states and the 60s in the South, the forecaster said. Meanwhile, freezing rain and some snowfall could affect Wisconsin and New England, according to Accuweather.
In East Texas, Katy advanced 38.0 cents day/day to an average $2.240, and the Houston Ship Channel rose 45.5 cents to $2.110. Farther west, Waha added 39.0 cents to an average $2.080 in trade that was the state’s most active Wednesday.
Henry Hub in Louisiana rose 28.0 cents to $2.435.
Gains were more modest across western states and the country’s midsection. Chicago Citygate rose 17.0 cents to $2.235.
Meanwhile, prices were mixed in the Northeast and Appalachia. Columbia Gas shed 0.5 cent to $1.740 for an area that covers portions of six states from Kentucky to New York.
