Punxsutawney Phil saw his shadow Friday, foreboding six more weeks of winter, but maybe it wasn’t obvious by looking at the natural gas markets. Cash prices experienced widespread weakness for a second straight day as a forecast warm-up took the edge off East Coast premiums. The NGI National Spot Gas Average slid 69 cents to $2.92/MMBtu.
Futures had a quiet day Friday, capping off a decidedly bearish week that saw prompt-month prices plummet from $3.631 (Monday’s February expiry) to as low as $2.837 (Thursday’s intraday low for the March contract). On Friday, March traded near even, settling a penny lower at $2.846. April settled at $2.792, down 0.1 cents.
A change in the outlook for February cold, combined with production levels recovering from freeze-offs in January, helped the bears wrest control of the market during the week.
The latest weather data Friday was “slightly colder” for the week ahead “and was also slightly colder around Feb. 11-12, but still with the frigid Arctic cold pool retreating north into Canada,” according to NatGasWeather.com.
“There will continue to be swings in demand the next two weeks as numerous weather systems remain lined up to track across the northern and eastern U.S. They just won’t tap into” frigid Arctic temperatures “as impressively as the data showed at the start of the week.”
In the near-term, NatGasWeather noted “colder than normal temperatures” for Friday “covering most of the eastern half of the country for strong demand, aided by lows” overnight “reaching the teens to -10 over the Midwest and Northeast, with 20s and 30s over the southeastern U.S.” A brief break was expected Sunday ahead of another cold shot through the northern and eastern part of the country in the week ahead, “with yet another cold blast right on its heels” by the end of the week.
Volatile East Coast cash prices, which saw a few swings throughout the week on the weather, swung lower Friday. The big declines came after a number of New England points had surged above $10 in Thursday’s trading.
Algonquin Citygate shed $4.99 to average $7.26, while Dracut dropped $4.36 to $8.00.
AccuWeather.com was calling for temperatures in the 20s Saturday in Boston to give way to highs in the lower to mid-40s Sunday and Monday.
New England regional demand was expected to drop from 4.06 Bcf/d on Friday to 2.81 Bcf/d by Sunday, according to Genscape Inc.
Despite forecasts for temperatures in the 20s down into the single digits in Chicago over the weekend and into Monday, Chicago Citygate prices fell for the fifth straight trading day, giving up 13 cents to average $2.76.
In the West, where Radiant Solutions was forecasting above-normal temperatures over the next several days in cities like Denver and Burbank, CA, sub-$2 prices were prevalent Friday.
Utility Southern California Gas was forecasting system demand to drop from around 2.5 million Dth/d Friday to 2.279 million Dth/d by Monday. Deals at SoCal Citygate plummeted 55 cents to $2.05. SoCal Border Average tumbled 32 cents to $1.91.
In the Rockies, Kern River gave up 37 cents to $1.90.
The declines in the cash market Friday followed big markdowns in the futures and Henry Hub spot prices. Henry Hub dropped another 16 cents Friday to average $2.86, bringing it in line with the March contract. That’s a nearly 75-cent swing from Tuesday’s trade day, when Henry Hub cash prices averaged $3.60.
PointLogic Energy analyst Robert Applegate said Friday it had been “a week of contradictions” in terms of natural gas supply/demand shifts.
“On Jan. 29 Lower 48 dry gas production was tearing into the record books and demand was down,” Applegate said. “That day, dry gas production hit 77.8 Bcf, a record that was topped the next day when production hit just 50 MMcf shy of 78 Bcf. The same day, Lower 48 demand was down at 86 Bcf due to population-weighted temperatures being four degrees above average.
“Fast forward to Friday, and production is down,” following a reported explosion on the Rockies Express Pipeline’s Seneca Lateral in Ohio, “and demand is more than 10 Bcf higher,” he said. “Friday’s Lower 48 population-weighted temperature is expected to be 3 degrees below average and demand is expected to be over 96 Bcf.
“There has been some argument between the weather models for the month of February, but based on the current two-week forecast, this could be the last time the U.S. sees demand this high until at least after Valentine’s Day.”
After all the recent selling on the March contract, Bespoke Weather Services had a slightly bullish outlook Friday.
“The story is complicated heading into the weekend now, as no longer is it a question of how much further we have to drop off warming trends but instead how much we could retrace recent selling should cold risks return,” Bespoke said. “Afternoon American guidance was rather uninspiring...but afternoon European guidance shows favorable trends across the Pacific for increased cold risks into the second half of February.”
The firm cautioned that “this trend has continued for just a couple runs and remains in the relatively distant future” and also noted that “admittedly, the risk that this cold is significant enough and can penetrate far enough south to return all the winter premium we lost last week is relatively low.”
After Thursday’s Energy Information Administration storage report -- a 99 Bcf withdrawal for the week ending Jan. 26 -- matched the market’s bearish expectations, analysts with Tudor, Pickering, Holt & Co. said early predictions for the following week’s report were coming in around -115 Bcf Friday versus norms of around -140 Bcf.
“Some relief may be provided with arctic weather forecasted around Valentine’s Day, but expect little love for the forward curve with markets leaning balanced to oversupplied -- in the teeth of winter, no less,” TPH said.
Taking a much longer-term view, the TPH analysts said natural gas commodity prices could go into “hibernation season” for “the balance of 2018.” There are “lots of moving pieces on the demand side (additional liquefied natural gas export capacity, Mexican demand timing, Gulf Coast petrochemical expansion), but the structural elements appear constructive heading into the next decade,” analysts said.
“None of that is top of mind in conversations with investors right now as North American supply growth is poised to overwhelm, but we do think it worth keeping the sonar fired up for any pings of demand acceleration.” TPH’s team added that, “As far as we can tell, the time-tested economic principle remains firmly intact -- nothing stimulates commodity demand like ultra-low prices.”