A record natural gas storage withdrawal that managed to exceed already lofty market expectations on Thursday helped spark a 17-cent surge in the prompt month futures contract. In the spot market, another round of cold temperatures helped drive widespread gains through the middle of the country, lifting the NGI National Spot Gas Average 9 cents to $3.18/MMBtu.
The February contract settled 17.8 cents higher at $3.084 Thursday and then kept going after the close. By around 4 p.m. EDT February was trading above $3.110, good enough to best the recent intraday high of $3.097 established Jan. 2. March settled 10.3 cents higher at $2.925.
The Energy Information Administration (EIA) reported a staggering 359 Bcf withdrawal from U.S. natural gas stocks for the week ending Jan. 5, a bullish surprise that easily toppled the previous record set in January 2014.
The February contract had already run up above $3.00 ahead of the 10:30 a.m. EDT release of the final number. Once the -359 Bcf figure crossed trading desks, prices quickly bid up to around $3.055 before briefly see-sawing back below $2.980. By 11 a.m. EDT, the prompt month was trading around $3.01, up about 10 cents from the previous settle.
Prior to Thursday, the largest net storage pull on record from EIA was a 288 Bcf withdrawal reported on Jan. 10, 2014. The 359 Bcf withdrawal in this week’s report is more than double the year-ago and five-year average withdrawals of 151 Bcf and 162 Bcf, respectively.
Coming off the most potent stretch of heating demand since the notorious polar vortex-influenced 2013-2014 winter, consensus estimates before the report had predicted a record withdrawal. But the actual number still surpassed the median estimates by around 25 Bcf.
A Reuters survey of traders and analysts showed on average a 333 Bcf withdrawal for the week. Responses to the Reuters survey ranged from -285 Bcf to -362 Bcf. A Bloomberg survey showed a median -332 Bcf, with a range of -305 Bcf to -345 Bcf.
PointLogic Energy called for a 325 Bcf withdrawal. Stephen Smith Energy Associates predicted a withdrawal of 316 Bcf, while Kyle Cooper of IAF Advisors predicted a 338 Bcf pull.
The final withdrawal figure came in "an impressive 31 Bcf more than our estimate," Bespoke Weather Services said shortly after EIA's report. "The holiday effect was clearly counteracted by soaring cash prices that led storage optimizers to release this record amount of gas.
"The anticipation of this number drove prompt month natural gas prices far higher on the day, and the initial reaction was bullish to a much tighter print compared to last week," Bespoke said.
Total working gas in underground storage ended the week at 2,767 Bcf, versus 3,182 Bcf a year ago and five-year average inventories of 3,149 Bcf. The year-on-year storage deficit widened for the period from -192 Bcf to -415 Bcf, while the year-on-five-year deficit increased from -192 Bcf to -382 Bcf, EIA data show.
By region, the largest pull came from the South Central at -153 Bcf, including 78 Bcf withdrawn from salt and 76 Bcf withdrawn from nonsalt. The Midwest saw a 97 Bcf week/week withdrawal, while 76 Bcf was withdrawn from the East.
"That was a doozy by anyone's estimation," Powerhouse's Elaine Levin, president, said of Thursday's storage figure. "...Trading range aside, that was a good finish for the bulls. If you look at your storage numbers, perhaps this pulls us back a little more than people were anticipating."
Levin said she still pegs $3.15-3.20 as the next area of resistance.
"Every time this market's gotten up to about $3.15-3.20 there have been sellers to take advantage of it," whether traders playing the range or producers "looking to lock in their production," she said. "Do we see the return of those sellers that have been rewarded pretty well every time they've come in and sold this thing when it's gotten up to those levels? That's going to be the question. Did something fundamentally change here?"
Whether the market will get more frigid winter weather to follow next week's cold remains another question.
"Given what we've pulled out of storage, if we were to see a cold snap some time end of January, early February, that might goose this market above these levels," Levin said. "But that's a big if."
While the bullish surprise in storage grabbed plenty of attention, forecasters were also noting cold temperatures were expected to start moving into the Lower 48 Thursday and stick around into next week.
"The latest midday weather data was again a little colder for next week," said NatGasWeather.com, "with lingering cold late in the week and now through Jan. 18. The data does maintain a break Jan. 19-22 for lighter demand, but some solutions show a colder trending system across the central U.S. and into the East Jan. 23-24.
"...A colder trending series of weather systems with rain and snow will arrive into the eastern half of the country this weekend and through next week," the firm said. "This is expected to result in another round of strong demand as frigid air out of Canada again drops lows from -15 to 15 degrees across the northern U.S., with 20s and 30s into the South and Southeast, with some freeze-offs likely, although not as impressive as what occurred last week."
Pipeline operators have been getting ready for the next round of frigid temperatures, Genscape Inc. told clients in a note Thursday.
"In preparing for the next arctic blast making its way into the market, pipelines across the eastern two-thirds of the country have begun issuing warnings," the firm said. "Genscape meteorologists are forecasting Lower 48 population-weighted heating degree days (HDD) will begin accumulating Thursday and rise to a peak of 303 HDDs by Sunday -- about 65 HDDs above seasonal norms -- and remain elevated through the entirety of next week.
"While we certainly expect another round of price volatility to kick in, the magnitude of the gains is not likely to be as large as what we saw in the last two weeks," Genscape added. "This round of cold is not expected to be as geographically widespread nor quite as intense. In addition, forecast cold conditions are not expected to hit major producing areas outside the Marcellus like last week." However, "freeze-offs are still likely in effect in some areas of the Marcellus/Utica shales, and the incoming cold is not expected to help make conditions better."
Data from PointLogic Energy showed Northeast production at around 25.8 Bcf/d Thursday, down about 1 Bcf/d from levels observed prior to the Arctic temperatures that arrived in late December.
A Midcontinent trader told NGI this week that the reduced Northeast production was helping to drive cash prices higher Wednesday, and that trend appeared to continue in Thursday's spot market. The Midcontinent Regional Average jumped 30 cents to average $3.02 Thursday, including trades as high as $3.70 at Ventura, IA.
AccuWeather was calling for snow showers in Chicago Friday and lows in the teens. Prices at Chicago Citygate climbed 21 cents to $3.24, while Joliet saw trades reach $3.23.
While points across Texas, Louisiana, the Southeast and out West generally moved higher by double digits Thursday, some points in the Northeast continued to move the other way, slipping further from last week's weather-driven highs.
Algonquin Citygate stumbled $1.10 to average $3.38, while in Appalachia, Tetco M3 Delivery dropped 9 cents to $3.07.
The recent calm in Northeast and Mid-Atlantic cash prices may not last. Weather Underground was forecasting cold temperatures to reach the East Coast by the weekend, dropping lows into the teens Saturday and Sunday in major population centers like Washington, DC, New York and Boston.