Physical natural gas for Thursday delivery drifted in Wednesday’s trading as near-term weather forecasts showed continued mild conditions, with the heating load only surpassing seasonal averages at the very end of the month. Most points moved within just a few pennies of unchanged, and theNGI National Spot Gas Average rose 2 cents $3.20.
Cool, wet weather in Southern California led to a second storage withdrawal from the troubled Aliso Canyon storage facility, but traders seemed little concerned. Futures trading was only somewhat less lackadaisical, with the February contract rising 5.3 cents to $3.332 and March adding 5.1 cents to $3.346. March crude oil fell 43 cents to $52.75/bbl.
Next-day gas at major market centers was mixed as temperature forecasts continued to show above-normal readings from New England to the Midwest. Wunderground.com predicted the high in Boston Wednesday of 43 degrees would reach a balmy 51 by Thursday before settling down to 42 Friday, 6 degrees above normal. Chicago's Wednesday high of 38 was seen dipping to 34 Thursday and sliding to 29 Friday, just 2 degrees below normal.
Next-day gas prices fluctuated above and below unchanged. Gas at the Algonquin Citygate fell 2 cents to $3.56, and deliveries to the Chicago Citygate slipped 2 cents to $3.22. Packages at the Henry Hub were quoted flat at $3.25, and deliveries to El Paso Permian shed 3 cents to $3.11. Gas at Opal added 3 cents to $3.29.
Conditions were more challenging in California where cold, wet weather placed an unseasonal demand on the beleaguered Aliso Canyon storage facility owned by Southern California Gas Co. For a second day, the utility withdrew an undisclosed amount of gas from the shuttered field near Los Angeles, citing current cold weather conditions in the region. Withdrawals took place between 7-9 a.m., and more withdrawals are possible, the Sempra Energy unit said.
The withdrawals were executed under a winter withdrawal protocol established by state regulators, SoCalGas said. Wednesday morning's "customer demand illustrates the sudden peaks we regularly experience with changes in the weather, and we work with the California Independent System Operator and our customers to manage these changes in demand on an hourly basis."
Market response for the most part was muted, with spot prices at the SoCal Citygate giving up some of its premium to the SoCal Border Avg..
Gas at Malin was quoted at $3.33, up 5 cents, and deliveries to the PG&E Citygate added 3 cents to $3.66. Gas at the SoCal Citygate changed hands 9 cents lower at $3.66, and deliveries priced at the SoCal Border Avg. Average gave up a penny to $3.40. Gas on El Paso S. Mainline/N. Baja rose 2 cents to $3.46.
Futures traders were forced to deal with longer term weather outlooks that showed wide variations. Weather models came in mostly milder, but forecasters admit to conflicted model interpretations and a highly variable weather landscape.
"Changes were mostly in the down direction" on Wednesday morning regarding demand, "with warmer short- to medium-range changes for the Midwest, East, South with very slightly colder West adjustments," said Commodity Weather Group President Matt Rogers. "The American [ensemble] is colder toward the East Coast than the European [ensemble] for the six-10 day, while the European is warmer in the Midcontinent than the American.
"We like a split down the middle that amplifies both sides in this variable pattern situation. Otherwise, the 11-15 day continues to be a big mess, too, with the American ensemble showing cold from Chicago to New York and the European holding a warm lean for these same areas (the Canadian is in the middle of them both)."
Bulls, take heart. Industry consultant Genscape Inc. reported substantive year/year (y/y) production declines.
"January month-to-date production is averaging 70.68Bcf/d, a 0.94 Bcf/d decline versus January 2016," Genscape analysts said in a report Wednesday. "As per the norm for most of 2016, Northeast and Permian gains (up 1.37 Bcf/d year over year and 0.19 Bcf/d y/y, respectively) are being overwhelmed by non-Northeast declines (led by a 0.95 Bcf/d y/y drop in Rockies; 0.78 Bcf/d y/y drop in Midcon; 0.55 Bcf/d y/y drop in Texas; 0.19 Bcf/d y/y drop in Gulf Coast and San Juan)."
Analysts are expecting a well below-average inventory withdrawal in Thursday's Energy Information Administration (EIA) storage report, followed by a similar thin draw for the week of Jan. 27. Tim Evans of Citi Futures Perspective calculated a withdrawal of 128 Bcf for the week ending Jan. 20, and by Feb. 10 predicted storage would be only 33 Bcf less than the five-year average.
"Under this storage scenario, we see considerable week-to-week volatility in the pull from storage, but with the total tracking near the five-year average level overall," Evans said. "Often when the year-on-five-year average surplus or deficit is little changed, indicating no physical tightening or easing on a seasonally adjusted basis, we'll see natural gas prices either chop sideways or find other reasons to trend."
Thursday's EIA report is expected to show withdrawals far below seasonal averages as recent mild weather gets factored in. Last year a stout 202 Bcf were withdrawn and the five-year pace stands at a 176 Bcf pull. Ritterbusch and Associates calculated a 102 Bcf withdrawal, and Raymond James is expecting a 122 Bcf decline. A Reuters poll of 18 traders and analysts revealed an average 117 Bcf withdrawal with a range of -102 Bcf to -135 Bcf.