Natural gas futures erase nearly all gains from three-day rally as cold to come loses intensity
As forecasts continued to offer signs of a colder start through 2022, natural gas futures advanced into early trading on Monday. The January Nymex contract rose 14.8 cents to $ 3.879 / MMBtu around 8:50 a.m. ET, although it was far from the high of $ 3.979 reached out of trading hours this weekend.
In one look :
- EIA shows inventories are in excess of five-year average
- You don’t see the cold Canadian air penetrating deep into the United States
- Moderate near-term outlook pushes down spot gas prices
This was after natural gas futures took a big step backwards on Thursday, as an upcoming cold snap was not as strong as initially expected. Although the latest government inventory data showed continued tension, the January Nymex gas futures contract settled down 24.5 cents day / day to $ 3.731 / MMBtu. The February contract fell 23.0 cents to $ 3.630.
Spot gas – which traded Thursday for delivery of gas through Monday – also fell amid a slight short-term outlook that combined with the typical lull in demand seen over the holidays. Spot Gas National Avg from NGI. dropped from $ 1.145 to $ 4.005.
When it comes to futures stocks, there is a significant risk of holding positions ahead of the long Christmas holidays, but the latest weather data leaves too much to be desired for the outlook for early January. NatGasWeather said the Global Forecast System (GFS) and the European model lost a decent amount of demand overnight for the important January 1-6 period after a cooler trend on Wednesday. And while the midday GFS regained a few Heating Degree Days (HDD) for the period, it still wasn’t as cold as it used to be.
Both models still forecast strong demand in the first week of January, “just not as impressive with the intensity of the cold compared to previous races,” according to NatGasWeather. That said, a slight north or south shift with the freezing cold pool over southern Canada during the period January 1-7, and US demand could fall or rise in response.
“In our opinion, we would expect that there would still be enough cold air over the northern United States for strong demand in the first week of January, it is just unclear exactly how much of the air. ‘subfrost air will finally arrive, “NatGasWeather said.
Importantly, the forecaster said there was a better chance of a hard freeze in Texas this year compared to normal years. “There is some potential that this will eventually happen in the first half of January depending on the upcoming model.”
Even without a harsh frost in Texas, the coming cold in January could leave a big red mark on production. Freezes are likely in areas where freezing air could arrive, including the Rockies, the Bakken Shale and mid-continent.
EBW Analytics Group noted that January production has declined month / month in four of the past five years. While extreme freezes similar to February’s winter storm Uri remain extremely unlikely, “more modest and short-lived production drops may occur with the widespread cold in mid-January, further tightening the market to support high prices. “said Eli Rubin, senior analyst at EBW.
EBW noted that forecaster DTN’s Week 4 forecast calls for further expansion of cold anomalies through mid-January, adding nine HDDs and 2.3 Bcf / d of gas demand from week one. of the new year. From a meteorological perspective, a slowly progressing Madden Julian Oscillation (MJO) favors the onset of the currently bottled cold in central and western Canada southward through the Lower 48.
âWhile the MJO is progressing rather slowly, the cold can peak between early and mid-January before subsiding later in the month,â Rubin said.
Is the market still tight?
The impressive lack of cold weather so far during the winter season has helped allay supply problems in the United States, but the latest federal inventory data has continued to show some tension in the supply-demand balance. .
The Energy Information Administration (EIA) said inventories for the week ending Dec. 17 fell 55 billion cubic feet. The draw is more or less in line with expectations ahead of the report, with analysts projecting a pull from low to mid-50s Bcf.
However, Bespoke Weather Services said its modeling still shows the market to be tight compared to the five-year average – “pretty easily”. The big problem is that the weather demand has to show up in the forecast. “If so, we can come together,” the forecaster said.
The Midwest led the country in terms of withdrawals, removing 19 billion cubic feet from storage, according to the EIA. The Pacific removed 14 billion cubic feet and the mountain region removed 11 billion cubic feet. Eastern stocks fell 9 billion cubic feet.
In the south-central, EIA saw a net 3 billion cubic feet drop in inventory, which included a 9 billion cubic foot drawdown from salt-free facilities and a 6 billion cubic foot injection in salts. The net draw was a bit of a headache for some market analysts, who had predicted smaller build at the salt facility.
But Bespoke said wind production was the culprit, and the current week has seen a substantial drop in wind production. This, along with a rapid increase in Liquefied Natural Gas (LNG) exports and stronger week / week heating demand in the residential / commercial sector indicate a much larger drop in inventories in the upcoming EIA report. The first estimates are for the first triple-digit draft of the season, between 140 and 150 billion cubic feet.
As of Dec. 17, total working gas stored was 3,362 Bcf, 234 Bcf less than a year ago and 34 Bcf more than the five-year average, according to the EIA.
Once the schedule moves to 2022, withdrawals are expected to accelerate with the lull in vacation demand in the rearview mirror. Additionally, Bespoke said there was a lot of cold air on the charts and signals from the tropical forcing suggest some risk to the cold side before early January.
âObviously, the fact that it hasn’t happened, so far, has reduced our confidence, as well as the fact that it’s a long weekend,â the company said. “But, if a cold finally progresses over the weekend, we still think we can get back to $ 4.00 in the January contract as it nears its expiration.”
Money is falling like dominoes
With domestic demand expected to remain weak over the Christmas holidays, spot gas prices have slumped from recent highs.
A massive sale took place in New England, where snow was possible in the four days through Monday. However, Santa was also expected to bring plenty of sunshine, and daytime temperatures are expected to flirt with the 50-degree mark by Sunday.
As such, Algonquin Citygate’s spot gas gas prices have fallen from $ 7.245 to $ 7.335 on average for gas delivery through Monday. Tenn Zone 6,200L plunged $ 7.740 to an average of $ 6.675.
Other points in the northeast also experienced steep declines, which extended further upstream into the Appalachians. There in the Texas Eastern M-3, delivery fell from $ 1,015 to $ 2,560 on average for the four-day gas delivery period.
In the southeast, Cove Point lost $ 1.050 for an average of $ 3.205, while in Louisiana, the benchmark Henry Hub fell 47.0 cents to $ 3.515.
Strong double-digit price drops were the norm across the country, as west coast markets posted more robust losses amid a very soggy outlook for the long holiday weekend. El Paso Bondad lost 86.0 cents to $ 5.950 on average for gas delivery through Monday. PG&E Citygate plunged from $ 1,320 to $ 6.560 for the four-day gas period, with a similar drop of over $ 1.00 seen in Southern California.