Natural gas futures on Monday advanced for a second consecutive session, boosted by continued robust liquefied natural gas (LNG) levels. The April Nymex contract settled at $2.582/MMBtu, up 4.7 cents day/day. May gained 5.3 cents to $2.619.
NGI’s Spot Gas National Avg. rose 4.0 cents to $2.310, with prices up across the Rocky Mountains region along with a snow storm to start the week.
LNG feed gas volumes held well above 11 Bcf to start the week after approaching 12 Bcf during last Friday’s trading. The export activity boosted the prompt month on Friday by 5.4 cents and continued to help drive market momentum on Monday.
Asian demand for U.S. exports continues after a particularly cold winter, and European demand for American gas is on the rise after storage inventories there dwindled early in 2021. As of mid-March, there was 361 TWh of natural gas in storage in the European Union, representing only a third of the region’s capacity, according to NGI data. That is nearly 270 TWh below the year-earlier level.
However, domestic demand is in a precarious state with weather forecasts increasingly calling for warmth and minimized heating needs the rest of this month and into April. Analysts said the weather backdrop has prevented any sustained rallies this month and may challenge the current winning streak this week.
Bespoke Weather Services said the picture was as bleak “as it can be at this time of the year.”
Weather “remains decidedly on the bearish side of the spectrum,” the firm added Monday. While projected temperatures for the rest of March remained mostly unchanged compared to earlier expectations, “we are seeing more evidence confirming our view that April also at least starts out quite warm, a trend that we expect to continue as we move forward.”
April warmth will remain bearish for gas demand unless warmer-than-normal conditions “can focus solely” on the South, where there is some potential for cooling degree days later in the month, according to the firm. “That is not the pattern we see, however, as it looks to run broadly warm across most areas of the nation,” Bespoke said. “We suspect the run of warmth continues into summer, though this does not become bullish until May.”
EBW Analytics Group agreed that the mid-range weather outlook for domestic demand is bearish. But the firm said anticipated economic activity in coming months amid widespread coronavirus inoculations could drive stronger industrial demand, and long-range weather forecasts that show a hot summer ahead signal strong cooling needs. EBW also expects production to taper off given the light expected spring season demand for gas.
“By summer, the combination of record-high LNG feed gas demand, elevated industrial demand for natural gas, potential for hot weather and probable faltering production is likely to maintain a bullish long-term outlook” for futures, the EBW analysts said.
On the pandemic front, vaccine manufacturers are rapidly boosting production after a slow start, a development expected to accelerate inoculation programs this spring. Production of the three vaccines currently approved for use in the United States is projected to hit 132 million doses in March, up nearly threefold from 48 million last month, according to Evercore ISI estimates.
With an end in sight to virus outbreaks, Federal Reserve policymakers lifted their estimate for gross domestic product (GDP) expansion in 2021. The Fed’s median projection for GDP growth rose to 6.5% from 4.2%, reflecting the faster pace of vaccine production and the new $1.9 trillion federal fiscal support legislation that, among other things, funds vaccination efforts and delivers direct stimulus payments to a majority of American households.
The “fiscal support is massive and the increased vaccine availability is a welcome surprise,” said Scott Brown, Raymond James & Associates’ chief economist.
Looking ahead to Thursday’s Energy Information Administration (EIA) storage report, NGI’s model estimated a withdrawal of 17 Bcf for the week ended March 19. Bespoke looks for a pull of 26 Bcf.
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Even the lower of the two would appear bullish relative to last week’s report. EIA reported a withdrawal of 11 Bcf from storage for the week ended March 12 – short of market expectations for a pull in the range of 16-22 Bcf and well off the five-year average withdrawal of 59 Bcf for the comparable week.
Spot gas prices rose on Monday after a snowstorm blanketed parts of the Mountain West on Sunday and into the start of the week, with both Denver and Salt Lake City, UT, absorbing late blasts of winter and freezing temperatures. AccuWeather forecasters said a second round of wintry weather is expected later this week in the Rockies.
Elsewhere, rain showers and thunderstorms doused parts of the southern Plains on Monday, with high temperatures on Monday ranging from the 40s to 60s. Prices were up across Texas, with El Paso Permian up 13.0 cents to $2.285 and Waha ahead 14.0 cents to $2.285.
Looking ahead, most of the Lower 48 is expected to enjoy comfortable temperatures the rest of the trading week, with southern U.S. highs of 60s to 80s, along with above-average highs of 50s and 60s across the Great Lakes and Northeast, according to AccuWeather.
“After holding up reasonably well over the weekend, weather-driven demand is about to take another significant step lower, leading to small net injections into storage on most days and putting downward pressure on cash prices,” the EBW analysts said.
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