Natural gas futures found firmer footing Wednesday as looming winter weather trumped vigorous production volumes and expectations for another government report showing stout supplies in storage.
At A Glance:
- Lean storage draw expected
- Mid-January freeze looms
- Production remains elevated
Following a 5.4-cent gain to open regular trading for 2024 the day before, the February Nymex gas futures contract on Wednesday settled at $2.668/MMBtu, up 10.0 cents day/day.
NGI’s Spot Gas National Avg. surged 53.5 cents to $3.015 ahead of storms projected to blanket parts of the East.
While Wood Mackenze pegged production at around 105 Bcf/d on Wednesday – near record levels reached in December – bitter cold temperatures that eluded the Lower 48 last month were finally poised to arrive in the United States by mid-January. Europe, which is heavily dependent on U.S. exports of LNG, also is forecast to see a significant cold snap this month.
Domestically, these conditions were projected to prove roughly in line with seasonal norms in key gas-consuming regions such as the Midwest and Northeast – and average January weather in the North is typically frigid. The same goes for large swaths of Europe. The weather shift would ignite stronger heating demand, support physical prices and boost calls for American shipments of liquefied natural gas. Futures amassed more momentum atop those bullish undercurrents.
Market participants “wanted to see some real cold for once this winter,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI. “Now, they are starting to see it becoming reality, and prices are responding.”
The harsher cold could also induce production freeze-offs and curb output, helping to align supply/demand, he said.
“There is for sure a marginal supply risk, and we could start to see that show up in the production data” this month, said Saal.
He also noted that speculators began January net short on natural gas futures. They may increasingly see the need to buy back into the market to cover short positions.
National Weather Service (NWS) forecasts called for temperatures just above average through the current trading week – following a mild December. But the outlook includes a stark turn to frosty air across much of the country and lows in the single digits over stretches of the North by the middle of next week. Such conditions were projected to extend deep into the following week, spawning a solid stretch of heating demand.
Mobius Risk Group analysts noted that a colder weather pattern “will be crucial for the market” to eat into storage supplies and maintain price momentum. Absent sustained cold, strong production could once again present “a material challenge for a market still searching for levels which will thwart supply.”
Storage Snapshot
The market will likely focus next on Thursday’s U.S. Energy Information Administration (EIA) storage report – covering the final week of December – and it is expected to remind traders of the soft demand and elevated supply that captured their attention through much of 2023.
The latest government print also includes the Christmas holiday, a period in which commercial demand tends to taper. Temperatures were also mild during the period.
The Schork Report’s analysts said Wednesday peak temperatures in Chicago, for example, averaged 60% above normal on Christmas Day, while New York City residents enjoyed highs 19% warmer than average. “In addition to the slack demand we typically see around the Christmas holiday, weather was a nonevent,” they said.
Major polls showed analysts anticipating a weak draw by historical standards for the period ended Dec. 29.
Withdrawal estimates submitted to Reuters ranged from 17 Bcf to 86 Bcf and landed at a median of 42 Bcf. Bloomberg’s survey generated pull expectations that spanned 9 Bcf to 49 Bcf, with a median of 35 Bcf.
NGI modeled a decline of 40 Bcf. That compares with a five-year average pull of 97 Bcf.
EIA reported an 87 Bcf withdrawal from storage for the week ended Dec. 22. It lowered inventories to 3,490 Bcf, but stocks remained 10% above the five-year average.
A bullish tilt, however, may soon be in the cards. Early estimates reported to Reuters for the week ending Jan. 5 ranged from withdrawals of 65 Bcf to 159 Bcf, with an average decrease of 123 Bcf. That compares with a five-year average pull of 87 Bcf.
Cash Climbs
Spot gas prices rallied a second day to kick off the new year on the expectations for frigid temperatures in the week ahead.
NWS data showed chilly highs in the 20s and 30s this week for the Midwest and East, with snowfall likely to accumulate late in the week. Generally benign conditions were projected to linger elsewhere. But widespread cold looms for much of the Lower 48 next week, with freezing conditions first taking root in the West and Plains before advancing eastward to canvas much of the country.
Price gains were widespread on Wednesday. Houston Ship Channel jumped 26.0 cents day/day to average $2.330, while Dawn in the Midwest rose 16.0 cents to $2.435 amid heavy trading. In the Rockies, Northwest Sumas advanced 42.5 cents to $3.465.
Spikes in the Northeast, where prices tend to be volatile in the winter, were even more pronounced. Algonquin Citygate soared $3.895 to $6.855, and Tenn Zone 6 200L climbed $3.535 to $6.595.
Alex Sosnowski, AccuWeather senior meteorologist, said in the near term the Northeast is poised to endure its first major snowstorm of the season late this week, jumpstarting the anticipated rise in heating demand.
For markets from New York to New England, Sosnowski said, “this could be the biggest snowfall in two winters…The area of the snow is likely to expand rapidly once the storm's moisture reaches the central and southern Appalachians, as well as parts of Mid-Atlantic and southern New England late Saturday.”
The last time there was at least an inch of snow from a single storm in New York City was on Feb. 13, 2022, Sosnowski said. Philadelphia and Washington, D.C., similarly have not picked up an inch of snow from one storm since early 2022.
