Natural gas futures traded near even Friday as a warm forecast and lean storage picture left the market on the fence. Cash prices sank on expectations for moderate temperatures and lackluster demand over the weekend, and the NGI National Spot Gas Average dropped 25 cents to $3.10/MMBtu.
The February contract settled 0.4 cents lower at $3.185 Friday after trading as high as $3.246 and as low as $3.133. March, meanwhile, fell 4.7 cents to $2.941.
"We head into the weekend with the slightly bearish sentiment that dominated much of the week remaining," Bespoke Weather Services said in a note to clients Friday. Despite warm trends in the weather outlook and a bearish miss on the week's storage report, concerns over reduced inventories “remained enough to keep natural gas prices propped up decently through the week.
"The market continues to remain very weather sensitive, with storage levels low enough that any colder weather could quickly spike prices," but "the risk for any significant cold before the second week of February appears rather minimal," Bespoke said.
Models were showing signs of a potential colder pattern arriving in the second week of February, according to the firm.
"The market is banking on that cold in February, and it does look like a strong possibility," Bespoke said. But "there are risks that the cold could be delayed more than some are expecting, allowing prices to pull back. A large gap Sunday evening looks likely, with a bit more risk that it is lower."
NatGasWeather.com said midday weather guidance Friday "was little changed but could be interpreted as a little colder with a weather system tracking out of the central U.S. and into the East around Jan. 29-30, but milder trending before and after.
"Most importantly, the data failed to trend any colder over the eastern half of the country for the first several days of February," the firm said. Pointing to a mild ridge "expected to set up Jan. 31-Feb. 2 across the eastern half of the country...the big question is whether this frigid air will advance eastward Feb. 3-7, which we expect will be most important to the markets over the weekend break. If the mild eastern U.S. ridge is able to block the cold air's advances Feb. 3-7, the markets are certain to return disappointed."
INTL FCStone Latin America's Tom Saal, senior vice president, noted that the spot month contract has been making higher highs and higher lows since the January contract settled at $2.598 on Dec. 21.
Citing his monthly Market Profile, Saal noted that prices surpassed the 50% monthly breakout target at $3.273 in the past few days and stayed above the upper end of the initial monthly balance at $3.097.
"Based off the numbers I'm looking at, the momentum in this market for the month is up, even though today may have been a setback," Saal said. "...The weather's going to oscillate. You can count on it." Traders "were expecting a cold winter, and they didn't get a cold winter until late in the season. So now they're not too aggressively wanting to bet the farm on the weather."
Saal said it will be interesting to watch what happens with the March/April spread. "Historically, this winter hasn't really done a lot of damage yet, but if we get a cold February, that spread's going to really jump.”
In the spot market, prices fell in most regions Friday as the effects of cold earlier in the week looked to dissipate.
PointLogic Energy was expecting "much more depressed demand" over the weekend in the Lower 48 "due to the weekend effect combined with a nearly 15-degree temperature swing up," analyst Robert Applegate said Friday.
"The population-weighted temperature on Wednesday for the Lower 48 was 32 degrees, a full 10 degrees below the eight-year average. The population-weighted temperature for Sunday is forecast to be nearly 47 degrees," Applegate said. "When the temperatures were so low on Wednesday, demand spiked to nearly 120 Bcf, but with the upcoming weekend combined with warmer temperatures, demand is expected to be approximately 75 Bcf," a nearly 45 Bcf swing.
PointLogic was showing Lower 48 production hovering around 75 Bcf/d as of Friday.
After some points in East Texas got above $8 earlier in the week amid a rare winter storm in the region, prices there weakened further Friday. Katy fell 11 cents to $3.16, while the regional average dropped 8 cents to $3.10.
Over the next several days conditions are expected to "warm across the eastern half of the U.S. in the wake of recent frigid blasts, with highs of 40s and 50s gaining ground over the Great Lakes and Northeast, with 60s and 70s over the South and Southeast," NatGasWeather said.
"The West will see increasing storms with rain and snow pushing into the central U.S. at times. A weather system will track out of the central U.S. and into the East during the middle of next week for a minor increase in heating demand."
With the warm-up ahead, East Coast prices showed signs of shedding their winter premiums Friday. At Transco Zones 5 and 6, where prices have been notably volatile during cold stretches this winter, points traded at only a small premium to Henry Hub Friday.
Transco Zone 6 NY averaged $3.40, down $1.05 on the day, while Transco Zone 5 gave up 68 cents to $3.33. Henry Hub dropped 20 cents Friday to average $3.18.
Appalachian prices dropped as well, with Dominion South giving up 14 cents to $2.68.
In the Midwest, AccuWeather was calling for Chicago to see highs in the mid-40s Saturday and Sunday, and prices there fell.
Chicago Citygate finished below $3 for the first time since Jan. 9, falling 8 cents to average $2.93. The Midwest Regional Average shed 11 cents to $2.93.