January Nymex natural gas futures staged a modest recovery Wednesday, but attempts at more considerable gains were thwarted by overall mild weather trends that pointed to comparatively small storage withdrawals as production stayed robust.
At A Glance:
- January futures stage modest recovery
- Slight cooldown provides some support
- Fundamentals remain mostly bearish
The January contract settled up 2.4 cents at $2.335/MMBtu, off an earlier high at $2.385. February futures gained 5.2 cents to a finish at $2.292.
NGI’s Spot National Avg. was down 7.0 cents at $2.475. Losses were widespread and supported by outlooks for mild weather to blanket the majority of the country. Only the Southeast and parts of the West saw modest gains.
Vortex Commodities meteorologist/trader Brian Lovern told NGI, “This week, we have seen stronger power burns and storage scrapes, and finally, last night, the weather models, at least for now, stopped moving warmer, and even added a handful of gas-weighted heating-degree days (HDD), so the recipe was there for Wednesday’s move higher.”
Small changes Wednesday in weather forecasts increased the number of HDDs by two in the American model and seven in the European model, according to NatGasWeather.
Overnight weather data trended a little colder, NatGasWeather said. However, forecasts still called for exceptionally warm conditions that pointed to demand nearly 150 Bcf lighter than normal for the coming 15 days.
In a midday update, NatGasWeather said temperatures over the northern United States would reach highs in the 30s to 50s, with very few areas experiencing highs below freezing.
“Without subfreezing temperatures across the northern areas, daytime highs will be a hefty 15-30 degrees warmer than normal for mid- and late December,” NatGasWeather said.
Additionally, the firm said southern portions of the country would experience comfortable highs in the upper 40s to 70s, even as a barrage of weather systems track through with heavy showers.
EBW Analytics Group analyst Eli Rubin said, “Blowtorch December warmth is extending to blanket the country in bearish anomalies through mid-December, with December 2023 forecast as the third warmest in history.”
The warmth extending into the official start of winter on Dec. 21 helped cap the midweek advance.
Lovern said, “From here, as always in winter, a lot depends on the weather.”
There are hints that weather bearishness has neared or reached the peak, with a move closer to normal possible by the new year. “If that happens, I think we have bottomed at least for a while,” Lovern said.
He said while confidence is low, if the actual cold does show up, there could be a very sharp 30- to 50-cent rally in natural gas futures, given how short the market is.
Rubin agreed. He said Wednesday that speculator short positions continue to expand to fresh 10-month highs.
“If a bullish catalyst emerges and drives profit-taking by shorts, a notable (while likely short-lived) pop higher appears possible,” Rubin said.
Lovern said, conversely, if attempts at cooling fail, and the first half of January is as warm as December has been, “then we likely see $2.00 trade in the prompt month.”
Looking to Storage
The next major catalyst for natural gas futures could come Thursday at 10:30 a.m. ET, when the U.S. Energy Information Administration releases storage data for the week ended Dec. 8.
Surveys ahead of the print suggested a withdrawal from storage facilities that would compare bearishly against the five-year average and further widen surpluses toward what could be 400 Bcf by January, according to market experts.
NGI modeled a 55 Bcf storage withdrawal for the review week that compared against a withdrawal of 46 Bcf during the same week a year ago and a five-year average decrease of 81 Bcf.
Updated surveys by Reuters outlined a range of withdrawals from 44 Bcf to 77 Bcf, with the average pegged at a 55 Bcf drawdown. The Wall Street Journal survey averaged a 50 Bcf draw.
A drawdown within the range of expectations for the Dec. 8 week would widen the five-year average surplus that stood at 234 Bcf at the end of the week of Dec. 1.
Beyond storage, natural gas production remained robust at 105.3 Bcf/d Wednesday, just a tick lower from 105.4 Bcf/d Tuesday, according to Wood Mackenzie data.
LNG remained a tailwind with liquefied natural gas feed gas flow at 14.2 Bcf/d, according to NGI’s U.S. LNG Export Tracker.
Cash Markets Soften
Ahead of a cooldown forecasted for later in the six- to 10-day outlook, Maxar’s Weather Desk said warmer weather with temperatures much above normal would engulf the East, associated with a low-pressure system that would track along the East Coast with rain and potentially gusty winds.
Pressured by lackluster demand triggered by the warm-weather trend, the price of natural gas at Northeast hubs tumbled. Iroquois Zone 2 deals were down 61.0 cents day/day to an average of $2.740. Losses across the region sent the Northeast Regional Avg. 34.5 cents lower on the day to $2.875.
Bucking the predominant downtrend, the Southeast Regional Avg. managed a 4.0-cent gain to $2.805, helped by advances at Cove Point and Transco Zone 5.
A few locations in the Rocky Mountain region, including a 14.0-cent gain at El Paso San Juan to an average of $3.610, limited the retreat. The Rocky Mtns. Regional Avg. was down 8.0 cents to $2.925.
