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February Natural Gas Called Higher as Market Still Eyeing Cold Risks

February natural gas was set to open Friday about 3 cents higher at around $3.478, with the market still watching for frigid temperatures expected to hit around the end of next week.

The March contract was set to open about 4 cents higher at around $3.135.

"The overnight weather data held colder trends with a weather system into the eastern U.S. net week, and with the first Arctic blast arriving Feb. 1-4," NatGasWeather.com said in a note to clients. "However, the data continues to look less impressive after Feb. 5 as a milder break follows the Arctic blast.

"A second Arctic blast is favored to push into the Plains and Midwest Feb. 6-9 and is a touch colder in some of the data over the northern U.S., but still fails to advance very far into the South or East as high pressure effectively blocks it," the firm said.

Bespoke Weather Services said Friday it added around 4.5 gas-weighted degree days overnight to its 15-day outlook.

"The most noticeable change for us was an increase in cold risk through the second week of February," Bespoke said. "...The entire natural gas strip is popping again Friday morning on continued cold risks as we finally see model guidance begin to pick up on" the potential mid-February heating demand.”

Combined with colder forecast changes for early February, Bespoke said its sentiment is “slightly bullish and seems to keep $3.20 in play for the March contract ahead of the weekend" even with less impressive storage withdrawals expected the next two weeks.

The Energy Information Administration reported a 288 Bcf withdrawal from U.S. gas stocks for the week ending Jan. 19, tied for the second-largest pull on record going back to at least 2010. However, the report, a bullish miss versus expectations, couldn't rally the February contract Thursday after big gains earlier in the week.

"The market appears comfortable with the notion that production growth is going to be more than capable of satisfying demand for the balance of the winter and injection needs headed into the summer," Genscape Inc. said Friday. "Our SpringRock daily pipe data shows current Lower 48 volumes mostly recovered from the early January freeze-offs, now solidly back above the 76 Bcf/d mark.

"And SpringRock's forecast continues to show monthly growth approaching 0.5 Bcf/d through the end of summer." While the firm's forecasts also show "impressive gains in demand...those gains are not expected to pace the supply-side growth," Genscape said.

In a note to clients Friday, analysts with Tudor, Pickering, Holt & Co. (TPH) said they expect a "step-change" in the supply and demand dynamics for next week's report. The analysts noted that "heating degree day forecasts for the week are around 20% below five-year norms, weather-related outages at Sabine Pass have pushed liquefied natural gas exports for the week down to 2017 levels, and U.S. production has returned to peak levels of 77 Bcf/d.

"Though storage levels are precariously low, we still see supply outpacing demand to remove support for the commodity later into the year," TPH said.

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