January Nymex natural gas futures’ four-day winning streak ended Tuesday in losses driven by revised weather outlooks that erased some cooler, supportive weather from forecasts.
At A Glance:
- January futures slip 1.1 cents
- Weather forecasts more bearish
- Spot gas prices slump
The front-month contract settled at $2.492/MMBtu, off 1.1 cents day/day. February futures closed at $2.366, off 5.0 cents.
NGI’s Spot National Avg. was down 15.0 cents at $2.405. Notably, the Southeast gave back much of the previous day's gains, while advances in the Northeast, Rocky Mountain and California regional averages prevented a larger overall retreat.
January natural gas futures reversed early steeper losses as the market garnered some support from LNG feed gas demand that ticked up to 15.01 Bcf/d from 14.9 Bcf/d Monday, according to NGI’s U.S. LNG Export Tracker.
However, the market had been counting on a drop in temperatures to less bearish conditions once winter officially begins on Dec. 21 to drive heating demand and support higher prices.
Instead, the American and European weather models lost more demand overnight, “even backing off the cooler south pattern towards the end of the month,” Wood Mackenzie analysts said. That set the market up for Tuesday’s retreat.
NatGasWeather updated forecasts at midday showed a tighter gap between the two major weather models as revisions in the European model trended 11 heating degree days (HDD) warmer since Sunday, and the American model trended nearly 10 HDDs colder in its Tuesday midday run.
“Exceptionally light versus normal national demand” is expected through Dec. 28, NatGasWeather said. Then more robust demand is forecast from Dec. 29-Jan. 3, as cooler weather systems track nationwide. However, HDDs are still expected to be a little lighter than usual, and “why this period still leans bearish,” the firm said.
The European model shows strong cold shots arriving in the United States from Jan. 5-15. The American model suggests cold would come Jan. 4, hold through Jan. 11, and “isn’t as chilly” as the European model.
Price Futures Group senior analyst Phil Flynn told NGI, “Natural gas prices continue to be conflicted about the future weather forecast.”
Flynn said the debate continues from different weather forecasters, with some seeing a shift to sharply colder weather while others see an extremely mild winter.
“It appears those betting on a mild winter are winning out in the short term,” Flynn said. He warned that the United States would face a massive supply glut if winter fails to develop soon.
Supply Glut Woes
Looking ahead to this week’s U.S. Energy Information Administration (EIA) storage report, NGI is modeling a 75 Bcf withdrawal for the week ended Dec. 15. That would come in lighter than historical withdrawals and pad the surplus to the five-year average.
The five-year average for the period is a 107 Bcf pull, while the year-earlier withdrawal was 82 Bcf, EIA data show.
Total Lower 48 working gas in underground storage stood at 3,664 Bcf as of Dec. 8, 260 Bcf higher than the five-year average and 245 Bcf above year-ago levels.
“Fattening surpluses” could increase to over 350 Bcf by January, NatGasWeather said.
Mobius Risk Group analysts said the market is already expecting inventory constraint issues next fall. If January is anything like last year’s “paltry withdrawal of less than 600 Bcf” that would prove “very problematic,” the firm said.
EBW Analytics Group analyst Eli Rubin offered some hope. He said, “While natural gas oversupply and nonexistent weather-driven gas demand are the headlines, the combination of receding production and rising liquefied natural gas in mid-winter may offer glimpses of support – particularly if the weather turns cooler.”
Cash Market Higher
On Monday, Transcontinental Gas Pipeline Co. (Transco) reported an unplanned outage at compressor station 195, which reduced north-to-south capacity to 2,189 MDt/d.
Transco said Tuesday that capacity was restored, and prices for spot gas delivery to locations across the Southeast tumbled. Transco Zone 5 deals led the retreat, sinking $4.295 to $4.330. The Southeast Regional Avg. was down $1.490 to $3.100.
Meanwhile, Wood Mackenzie analyst Kevin Ong said much of the eastern United States would experience a sharp drop in temperatures this week in the wake of the strong storm that impacted much of the East Coast on Sunday.
A Maxar’s Weather Desk forecast showed persistent high temperatures in the low 40s and lows in the 30s across the Northeast region.
