Both physical natural gas for Thursday delivery and futures struggled in Wednesday's trading as weather forecasts softened again. With supply down about 2 Bcf/d year/year, weather-related demand becomes the primary market balancing factor.
Losses of a few pennies were widespread, but a few points in the Marcellus and Midwest managed to creep into the win column. The NGI National Spot Gas Average fell a nickel to $3.17.
Futures were taken for a double-digit ride lower, with February giving up 11.0 cents to $3.302 and March falling 11.1 cents to $3.294. February crude oil dropped $1.40 to $51.08/bbl.
In physical market activity, declines at eastern points dovetailed with forecasts of falling demand.
"Lower 48 demand is expected to be tepid this week as temperatures east of the Rockies are forecast to be remarkably warm for this time of year," said industry consultant Genscape Inc. Tuesday. Genscape is forecasting that Lower 48 population-weighted heating degree days (HDD) would reach 169, "about 68 HDDs below normal. HDDs decrease daily through Jan. 21, and are not forecast to return to seasonal norms until Jan. 29."
That would translate to an average demand for the week of only 76 Bcf/d, with a peak of 78.3 Bcf Wednesday, Genscape said.
In New England, demand is expected to drop from 2.9 Bcf/d to 2.75 Bcf/d by the weekend. Gas at the Algonquin Citygate shed a penny to $3.61, and deliveries to Iroquois, Waddington fell 6 cents to $3.55. Gas on Tennessee Zone 6 200 L added a penny to $3.69.
Demand at Appalachia points is forecast to slide from 13.5 Bcf/d to 11.3 Bcf/d as the week progresses. Deliveries to Columbia Gas were quoted 6 cents lower, and deliveries to Dominion South shed a penny to $2.95. Gas on Texas Eastern M-3, Delivery shed 2 cents to $3.13.
Midwest demand was forecast to fall to 10 Bcf/d by Sunday, and gas at the Chicago Citygates fell a cent to $3.22. Packages on Consumers and Michigan Consolidated also relinquished 2 cents to $3.24 and $3.25, respectively.
Near term weather forecasts moderated slightly and traders were considering a market that in the short term is balanced principally by demand, i.e., weather.
Tuesday overnight weather models showed the pattern of a cold West and warm East continuing. Wednesday’s six-10 day period forecast "is a little warmer over the East and cooler over the West," said WSI Corp. in its morning report to clients. Continental U.S. (CONUS) gas-weighted HDDs "are down 1.1 to 113.3 for the period, [and] these are 41.3 below average.
"The timing and details of storm systems could alter the CONUS forecast in either direction. Any warmer risks are pretty limited at this point though, perhaps greatest over portions of the southern and eastern U.S. There are minor colder risks across the central states and interior West by the end of the period."
Analysts expect only minor production gains and wide-swinging demand driving market balances and, by extension, prices.
"Fundamentals tightened week-on-week" for the week ending Jan. 6, "with supply holding stable but demand up 13%," said Societe Generale analyst Breanne Dougherty. "The week-on-week trend has been anything but consistent this winter. The relative tightening seen in week ended Jan. 6 balances is deeply skewed by the very demand weak base set by the prior week. Volatile weather patterns are translating into a very volatile demand pattern.
"Demand increased for week ended Jan. 6 by nearly 11.5 Bcf/d (13%), relative to the prior week. The gain was largely seen in the residential/commercial segment, but both power generation and industrial also showed some strengthening. Almost all of the demand variability is, of course, tied to weather," she said.
"Supply was a negligible 0.1% stronger for week ending Jan. 6. The supply side of the ledger has underperformed our expectation thus far this winter in aggregate volume, due entirely to the still-struggling domestic production average, but it has met our expectation for consistency. This means that the winter ledger has been entirely at the mercy of volatile demand."
Although often an outlier, Tim Evans of Citi Futures Perspective calculated a withdrawal of 216 Bcf in the Energy Information Administration’s storage report Thursday, well above last year's -175 Bcf and a five-year average of -170 Bcf.
The range on the week's estimates is large. Ritterbusch and Associates calculated a pull of 191 Bcf, and a Reuters survey of 20 traders and analysts revealed an average 231 Bcf decline with a range of -147 Bcf to -253 Bcf.
That sets the market up for a surprise when the figures are released at 10:30 a.m. EST, traders said.