April natural gas was set to open a half-cent higher at $2.656 Tuesday as overnight weather models once again offered only very subtle changes for the remainder of March.
“Natural gas prices are up a bit less than a cent so far this morning as we see overnight weather model guidance mostly unchanged, but prices sitting closer to support,” Bespoke Weather Services forecasters said.
Specifically, the weather outlook for March 25-26 trended slightly colder, although there may be some early season cooling demand across the Gulf Coast as well, Bespoke said. The highest confidence feature the forecaster is seeing is a return colder for the first few days of April from the Midwest into the Northeast.
Models have been strengthening this signal recently, and although actual gas-weighted degree days impact may be canceled out on weather model runs by further warmth before then, “we would expect this final cold shot to strengthen through the week and continue to keep heating demand expectations decently above average through early April,” Bespoke forecasters said.
Near-record production concerns sent April gas prices lower on Monday, but the direction of cash prices today and low storage inventories could be enough to keep some support under prices. Some early estimates show the U.S. Energy Information Administration (EIA) on Thursday reporting a storage draw in the upper 80 Bcf range, which is slightly lower than last week’s draw of 93 Bcf but would reduce inventories to around 1,445 Bcf and widen the deficit to the five-year average to roughly 335 Bcf. For the comparable week last year, 137 Bcf was withdrawn from storage and the five-year average withdrawal stands at just 53 Bcf.
This week’s storage draw estimates moved lower after last week’s EIA report, which came in lower than expectations, and now reflect a level of demand growth that is lower than that which was observed earlier this winter, Mobius Risk Group analysts said. Over the past several years, making new highs in production has been a “significant headwind for the market”, even in the face of low inventory levels and strong demand growth. The prompt April contract has fallen from its recent high of $2.811 to $2.651 on Monday, the Houston-based company said.
“Cash prices actually firmed up a bit yesterday, and we continue to see weather as supportive and Thursday’s expected withdrawal tight enough to support prices at these levels,” Bespoke said. If anything, the New York-based forecaster continues to see short-term risk skewed a bit higher, “as we have a couple large storage withdrawals followed by lingering cold into April that should keep a bottom under prices. Accordingly, we would be surprised to see support break, and should see at least $2.68 tested with $2.71-2.72 later this week.”
April crude oil was set to open about 9 cents higher at $62.95/bbl, while April RBOB gasoline was up nearly 3 cents at around $1.952/gal.