A two-day rally in natural gas futures ran out of steam Thursday after the third-highest storage withdrawal on record landed in line with expectations and failed to impress.
At A Glance:
- Print lands near consensus
- Production at 103.5 Bcf/d
- Models tease cooler mid-February
After bouncing off double-bottom lows since Tuesday, the February Nymex gas futures contract on Thursday fell 7.0 cents to settle at $2.571/MMBtu. The March contract, waiting in the wings to take over as the front month at open Tuesday, declined 8.2 cents to $2.180. Trade volumes for February were a fraction of March as participants exited positions ahead of expiry.
NGI’s Spot Gas National Avg. rose 4.5 cents to $2.420. Prices remain less volatile with mild weather taking hold into the weekend.
The U.S. Energy Information Administration (EIA) on Thursday reported a withdrawal of 326 Bcf for the week ended Jan. 19. Driving the massive drawdown was the season’s coldest blast of Arctic air to date, sending demand soaring above 160 Bcf/d and supply lower from freeze-offs.
The storage draw easily surpassed the five-year average decrease of 148 Bcf and year-earlier draw of 86 Bcf. It also approached the two largest pulls – 359 Bcf in January 2018 and 338 Bcf in February 2021, the week of Winter Storm Uri – based on EIA records dating back to 2010.
NGI had modeled a pull of 320 Bcf, near median estimates for Bloomberg and Reuters surveys. While the print landed in the middle of these estimates, it did not satisfy bulls. Some attributed the ensuing declines as a result of market positioning for an upside surprise.
“Looking good, but why’s everyone selling?” asked one analyst on the online energy platform Enelyst. “Expectations had a skew to the upside,” another said.
By region, stocks in the South Central region fell by 138 Bcf. That included a 75 Bcf pull from nonsalt facilities and a decrease of 63 Bcf in salts. The Midwest followed with a storage pull of 85 Bcf. The East showed a draw of 58 Bcf. Pacific stocks fell 29 Bcf, while Mountain region stocks decreased by 14 Bcf.
Last week’s supply freeze-offs widened the margin of error for estimates. EBW Analytics Group analyst Eli Rubin said the disruptions increased the “uncertainty bound by at least 25 Bcf in either direction.”
Similarly, analysts at Mobius Risk Group said they were prepared for a 20 Bcf surprise on either side of their 330 Bcf draw estimate. Like during Uri, producers reported material reductions in output, but this time consumption held stronger because of fewer curtailments, the analysts said.
Production continues to recover from a drop to under 91 Bcf/d on Jan. 16. Lower 48 output on Thursday was estimated at 103.5 Bcf, and Wednesday was revised higher at 104.1 Bcf, Wood Mackenzie said.
Canadian imports fell by 0.4 Bcf/d to 6.0 Bcf/d on Thursday, down from a surge above 8 Bcf/d last week that persisted through Monday, the firm estimated.
Feed gas demand for U.S. LNG exports rose to its highest level since last week’s winter storms knocked it down to around 9.3 Bcf/d. Liquefied natural gas feed gas flows on Thursday were estimated at 14.2 Bcf/d, according to NGI’s U.S. LNG Export Flow Tracker.
Looking Ahead
With the huge print now in the rearview mirror, the market’s attention has shifted to forecasts calling for balmy conditions into early February that could rebuild the storage surplus.
The draw for the latest week slashed the inventory overhang to the five-year average to 142 Bcf from 320 Bcf the prior week. Compared to a year earlier, the surplus fell to 110 Bcf from 350 Bcf.
Looking ahead to the print for the week ending Jan. 26, early estimates pointed to a drawdown possibly falling short of year-ago and five-year average levels.
Early estimates submitted to Reuters ranged between withdrawals of 105 Bcf and 226 Bcf, with an average of 180 Bcf. That compares with a withdrawal of 141 Bcf a year earlier and a five-year average decrease of 185 Bcf.
Exceptionally warm conditions over the next two weeks could weaken draws and send surpluses back above 320 Bcf, NatGasWeather said. “The damage inflicted from the recent frosty pattern will be completely offset by one of the warmest patterns of the past 50 years over the next 13 days,” the forecaster said.
Beyond the upcoming warm stretch, weather models were hinting at cooler conditions.
The American weather model trended colder into Thursday but then gave back some of the heating degree days midday, NatGasWeather said. The model trended warmer for the first week of February, when colder air arriving in the West was expected to struggle to overcome a warm ridge. This trend “isn’t ideal since the natural gas markets are counting on a better/cooler pattern arriving Feb. 8-18,” the forecaster said.
Another forecaster estimated a near 30% possibility of Arctic air returning in the second half of February, enough to cause more freeze-offs, EBW’s Rubin said. He noted that this may have played a role in the recent gains in the February contract.
Cash Edges Up
Physical spot prices rose for a second day Thursday as unseasonably mild weather was partly offset by lingering production curbs.
El Paso Natural Gas (EPNG) on Wednesday lifted a force majeure on its Bluewater station in northwestern New Mexico that had been in effect since Jan. 9. Westbound flows through EPNG’s Caprock station in eastern New Mexico had been cut by around 282,000 MMBtu/d, but on Thursday regained full capacity of around 544,000 MMBtu/d, Wood Mackenzie analyst Kara Ozgen noted.
El Paso Permian, which includes deliveries into EPNG, rose 4.0 cents day/day to average $2.150.
Downstream in California, SoCal Border Avg. rose 30.5 cents to $3.505. To its north, PG&E Citygate remained the highest price of any hub at $4.035, up 3.5 cents.
In the Rockies, Stanfield rose 20.5 cents to $3.515.
Declines were scattered across South and East Texas, the country’s midsection and northeast quadrant. NGPL TexOk lost 2.5 cents to $2.210. NGPL Midcontinent fell 4.0 cents to $2.155.
A mild weather pattern has left winter weather mostly absent across the Lower 48, with the exception of portions of northern New England to far northern New York, where ice and snow were possible, the National Weather Service said.
Wet weather systems were moving across the eastern half of the country, keeping temperatures much above average, NWS said. Flood watches remained in effect across the Gulf Coast,with more heavy rain forecast into Saturday, NWS said.
In the West, lows were still expected to fall below freezing across the Southwest, Rockies and Upper Plains, NWS data show.
