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Natural Gas Futures Climb on Supportive Weather; Smallish Storage Draw Expected

  • May natgas futures close 2.1 cents higher at $2.718
  • NGI National Spot Gas Average up 4 cents to $2.78
  • Traders expecting storage draw in the mid-20s
  • BREAKING: EIA reports -20 Bcf implied flow for Lower 48 storage week ending March 30, reclassification results in another -9 Bcf

Natural gas futures gained for the second straight day Wednesday, supported by a chilly near-term forecast and the promise of a prolonged withdrawal season. Spot prices in the Midwest and East Coast posted healthy gains Wednesday as temperatures were expected to cool off overnight and into Thursday across the northern United States; the NGI National Spot Gas Average gained 4 cents to average $2.78/MMBtu.

The May contract settled at $2.718 Wednesday, up 2.1 cents after trading as high as $2.746. The June contract settled at $2.766, also up 2.1 cents day/day.

“The latest midday data maintained a cold pattern across the northern and eastern U.S. this weekend through the middle of next week, but maintained a milder pattern April 12-18,” NatGasWeather.com said Wednesday, calling the forecast “bullish through the middle of next week, then neutral to potentially slightly bearish after.

“...Today’s move higher could be partially due to the markets seeing next week as cold enough to impress, especially when considering it will stall the injection season by two full weeks and push deficits in supplies to more than 400 Bcf versus the five-year average.”

Estimates for Thursday’s Energy Information Administration (EIA) storage report -- covering the last full week of the official withdrawal season -- point to a pull in line with the five-year average.

The median taken from a Bloomberg survey showed traders and analysts expecting a 26 Bcf withdrawal for the week ending March 30, with responses ranging from 22 Bcf to 39 Bcf. Last year, 4 Bcf was withdrawn, while the five-year average is a withdrawal of 28 Bcf, according to EIA data.

IAF Advisors analyst Kyle Cooper called for a withdrawal of 23 Bcf, in line with Intercontinental Exchange EIA storage futures, which settled Tuesday at a withdrawal of 23 Bcf. A Reuters survey of 23 participants settled on a median 26 Bcf draw with a range of -19 Bcf to -35 Bcf.

OPIS by IHS Markit said it expects a withdrawal of 27 Bcf from U.S. gas stocks for the week ending March 30, 36 Bcf looser week/week “owing to warmer weather across the Lower 48 and a significant drop in heating demand.”

OPIS said it expects end-of-March inventories to total 1,353 Bcf versus a historical average of around 1,700 Bcf.

“This lower end-of-season inventory is needed to make room for growing production this summer (driven by Appalachia, the Permian Basin and the Haynesville Shale),” the firm said. “The U.S. Lower 48 inventory deficit is concentrated in the South Central region’s nonsalt fields and in the Midwest -- areas that have access to this growing production. As a result, we expect the inventory deficit for these two regions...to shrink quickly this spring as growing supply supports accelerated refill rates ahead of summer heat.”

Considering the low end-of-season inventories, natural gas prices suggest that an “abundant supply scenario is the base case” going forward, INTL FCStone Financial Inc. Senior Vice President Tom Saal told NGI.

But the logistics of refilling storage could still present complications even with plenty of supply, according to Saal.

“We could have a hot summer, or the supply may not be where the pipes are,” he said. “These are a couple things that might prove to be a little confounding...and we’re going to need the gas in storage because of where we are now. We’re going to need the same amount of storage we had at the beginning of last season, because an average kind of winter brought us down to where we are now.

“You start getting below 1 Tcf and people get nervous.”

In the spot market, SoCal Border Average gained for the third straight trading day, adding 17 cents to $2.36, while SoCal Citygate continued to moderate but remained at a premium to the surrounding points, giving up 34 cents to $2.97.

Southern California Gas Co. (SoCalGas) on Wednesday was forecasting relatively moderate demand through the end of the week, with total system sendout expected to dip below 2.3 Bcf/d Thursday and Friday, versus receipts of around 2.4 Bcf/d.

Meanwhile, Genscape was forecasting total California/Nevada regional demand of close to 6 Bcf/d for Thursday and Friday, higher than the recent seven-day average of 5.14 Bcf/d.

Further upstream in West Texas, El Paso Permian added 22 cents to $2.05, while Waha jumped 18 cents to $2.18.

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