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Natural Gas Futures Finding Bottom; Spot Market Down Heading into Weekend

  • March down 0.9 cents to $2.625 after rallying into close Friday
  • Charts show “some bullishness creeping back into the market,” says Powerhouse’s Thompson
  • SoCal Citygate down to $4.09 following $25-plus prices earlier in week
  • El Paso Natural Gas force majeure could impact 75 MMcf/d AZ-to-CA flows: Genscape

Natural gas futures traded near even Friday thanks to an afternoon rally as prompt-month expiration loomed and weather models continued to advertise colder patterns developing in early March. Spot prices fell across the board amid expectations for weekend demand declines and warmth in the East; the NGI National Spot Gas Average shed 16 cents to $2.40/MMBtu.

The March contract, set to expire Monday, settled at $2.625, ending the session down 0.9 cents after trading as low as $2.555 earlier on Friday. April settled at $2.657, down 1.9 cents.

Powerhouse Vice President David Thompson pointed to a “bottoming process playing out” in the market.

“We keep hitting lows in that mid-$2.50s range that has now been holding for nine days,” a support level that has managed to “keep prices from getting another lurch down regardless of what we learn about weather,” Thompson told NGI Friday.

He noted long lower shadows in the candlestick chart two out of the last three trading days.

“That starts to tell you there’s some bullishness creeping back into the market,” Thompson said. “Will it be enough to push it back above $3.00? I don’t think so,” based on fundamentals. “But from a technical point of view, there’s clearly some bullishness building in those chart patterns.”

That said, it’s February and there’s still some cold risk through the remainder of winter, even if the market seems to have its doubts. “We’ll see if this holds or if there’s a little more weakness as we move into shoulder season and people look at production alongside the absence of any winter demand,” Thompson said.

After weather models trended warmer overnight, afternoon guidance Friday “stopped this medium-range warmer trend and increased cold risks in the long-range, with a modestly more supportive Pacific and a stronger lingering North Atlantic block,” Bespoke Weather Services said.

“Were these trends to continue over the weekend, we would walk into the day on Monday with noticeably more heating demand forecast through the next two weeks, likely supporting the front of the natural gas strip further.” Still forecast confidence is “limited,” the firm said.

“It is clear that the natural gas market is very tight regardless; demand at current price levels is impressive, as we saw $2.55 support hold yet again,” Bespoke said. “This seems to skew risk upwards, with a clear floor for prices if weekend trends do not impress but further upside into the $2.70-2.75 range if we continue to add gas-weighted degree days in the long-range” as indicated by the Friday afternoon weather data.

Meanwhile, the Energy Information Administration (EIA) on Thursday reported a 124 Bcf withdrawal from U.S. gas stocks for the week ending Feb. 16, a slightly larger pull than the average predictions leading up to the report. Last year 92 Bcf was withdrawn and the five-year average is a pull of 145 Bcf. The previous week, EIA reported a 194 Bcf withdrawal.

“Deviating from the last several weeks, storage numbers were finally in-line with Wall Street expectations as inventories break away from five-year minimums and market undersupply stabilizes closer to 1 Bcf/d,” analysts with Tudor, Pickering, Holt & Co. (TPH) said of Thursday’s week’s withdrawal. “As February winds to a close with no major weather demand events and storage levels begin to normalize, we’re looking to the second and third quarters for supply to begin to outpace demand.

“Though we may see a brisk March, the end of winter tends to have less of an impact from a historical burn per degree perspective,” the TPH analysts said. “On the export front, look for liquefied natural gas volumes to ramp back to (or above) normal as Sabine Pass resolves temporary storage tank issues and Cove Point comes online.”

Spot market declines were widespread Friday, with the heaviest losses occurring in the West.

SoCal Citygate, which saw trades above $25 earlier in the week, gave up 34 cents to average $4.09.

Southern California Gas Co. (SoCalGas) reported actual system demand of around 3.4 Bcf/d Thursday, versus reports of demand closer to 4 Bcf/d earlier in the week. The utility was forecasting system demand to hover around 3.5 Bcf/d over the weekend before climbing to just under 3.9 Bcf/d by Monday.

El Paso Natural Gas (EPNG) declared a force majeure Thursday at the Topock Compressor Station that was expected to cut deliveries into California from Arizona by about 75 MMcf/d day/day, Genscape Inc. said in a note to clients Friday.

A mechanical failure at one of the Topock compressor’s units was expected to limit operational capacity to 369 MMcf/d until further notice, according to Genscape. The restriction comes during a period of elevated flows into California where chilly temperatures across the West have stoked higher demand.

The monthly average flows through the meter from EPNG have averaged 354 MMcf/d, “however, the scheduled volumes for Thursday’s gas day were considerably higher than the monthly average at 443 MMcf/d, so a reduction of 74 MMcf/d is expected day/day,” Genscape said.

“EPNG’s deliveries to Mojave do not typically show any correlation with the downstream Kern/Mojave deliveries to SoCalGas. Also, EPNG has not delivered gas to SoCalGas at the Topock interconnect since 2016, due to SoCalGas’ L3000 remediation maintenance, which is not expected to end until this May.”

Genscape was calling for demand in California and Nevada to ease over the weekend, falling to 5.61 Bcf/d by Sunday, well below the recent seven-day average 8.42 Bcf/d.

Kern Delivery tumbled 85 cents to $2.51, while Malin shed 41 cents to $2.36.

Further upstream, in West Texas El Paso Permian fell 16 cents to $2.24, in line with the rest of the region, while in the Rockies, most points gave up around 40 cents or more on the day.

“High pressure will retake ground over most of the eastern half of the country, although temperatures will remain cold over the West and into the Plains,” NatGasWeather.com said in its one- to seven-day outlook Friday. “With the South and East again expected to experience widespread highs of 50s to 80s this weekend through much of next week, national demand will remain lighter than normal until late next week when the strong eastern U.S. ridge finally weakens to allow colder air to arrive.”

Total Lower 48 demand came in at 77.6 Bcf/d Friday, down about 4.6 Bcf/d from Thursday’s total, according to PointLogic Energy.

“Residential/commercial (res/com) demand for Friday is lower by a total of 3.3 Bcf/d across the Northeast, Midcontinent and Texas regions as population-weighted temperatures are 2 degrees higher in the Northeast, 4 degrees higher in the Midcontinent and 9 degrees higher in Texas” day/day, PointLogic told clients Friday.

Overall Lower 48 consumption was forecast to dip significantly over the weekend to around 71 Bcf/d. Warm weather in the Northeast and Southeast regions was expected to drive lower res/com demand, according to PointLogic.

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