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March Natural Gas Struggles to Match Bullish February Expiry; Cash Down

In its first day as the prompt month, the March natural gas contract inched higher but failed to match the bullish pace the February contract had set in the days leading up to its expiration.

In the spot market, Northeast prices pulled back after a weather-driven bump in Monday’s trading, while points from the Midwest to the Rockies and California dropped amid calls for warmer temperatures. The NGI National Spot Gas Average tumbled 39 cents to $3.64/MMBtu.

The March contract added 2.8 cents Tuesday to settle at $3.195 after going as high as $3.259 and as low as $3.162. By around 4 p.m. EDT, March was trading around $3.170, nearly even with Monday’s settlement.

The April contract settled 2.6 cents higher Tuesday at $2.965.

The February contract surged ahead of expiration Monday to roll off the board at $3.631, up 12.6 cents. That's the most expensive natural gas futures contract expiration since the January 2017 contract expired at $3.930.

If March is to fill the gap left by February’s strong finish, it got off to a tepid start Tuesday.

“When we’re looking at the life of what it may do, the March contract was making highs around $3.27 back in November, and Tuesday we had our high watermark at $3.259” before selling off, Powerhouse Vice President David Thompson told NGI. “If we punched through $3.27-3.30...that would be a clear breakout on the March contract, which would tell you traders are expecting cold to filter in through the calendar month of February.”

Monday’s run higher for the February contract likely had more to do with last day trading action than any change in the market’s outlook on weather and fundamentals, he said. The price action for March is a fairer reflection of the market’s attitude toward “what’s coming next,” and the 3-cent move appeared “indecisive.”

NatGasWeather.com noted disagreement among the major weather models Tuesday in the long-range outlook for February.

“Monday night’s Global Forecast System (GFS) suite of data was notably colder than the rest, and remains so, including Feb. 8-10, as it refuses to let the Arctic cold pool that pushes into the U.S. later this week retreat back into Canada” as the European model favored, NatGasWeather said. “The European does push cold back across into the U.S. Feb. 11-14, just not nearly as impressively as the GFS.”

An afternoon run of the European model “failed to trend notably colder to match” the GFS, “keeping large differences between the two in terms of expected demand,” the firm said. “...The GFS suite of data, being ominously cold midday, has set the bar high for itself, thus making it quite difficult for its early evening and overnight runs to match or exceed it” in terms of heating demand. “So odds favor the GFS backing off a little bit, especially with the European model unwilling to give in to the much colder GFS scenario.”

Estimates for this week’s Energy Information Administration storage report as of Tuesday were pointing to a much smaller withdrawal versus the 288 Bcf pull reported last week.

Stephen Smith Energy Associates revised its estimate Tuesday to a withdrawal of 101 Bcf, after previously calling for a 98 Bcf pull. That’s versus a seasonally normal draw of 159 Bcf based on 2006-2010 norms, according to the firm.

Intercontinental Exchange futures for this week’s EIA report closed at -98 Bcf Monday after opening at -97 Bcf.

The Desk’s Early View storage survey estimated an average 99.8 Bcf withdrawal for Thursday’s report, with responses ranging from -95 Bcf to -114 Bcf.

Predictions for a lighter storage withdrawal for the period ending Jan. 26 come as production continues to grow, with producers largely recovering from freeze-offs earlier in the month, according to analysts.

In fact, Lower 48 dry gas production set a new record Tuesday, according to PointLogic Energy. Data showed Lower 48 production reaching 77.6 Bcf on Tuesday, “the highest single day of natural gas production in U.S. history,” analyst Robert Applegate said. The estimate for Wednesday showed dry gas production potentially topping that at 77.5-77.9 Bcf/d.

The Northeast region stands out as a driver of this growth. “The Northeast’s top 10 dry gas production days have all come in the last 50 days,” Applegate said. “Since October, the Northeast has made huge gains in production, going from 24.3 Bcf/d for the month to Wednesday’s value of 26.7 Bcf.”

In the spot market Tuesday, Northeast prices pulled back a day after jumping on an early-week cold shot that had multiple operators taking steps to manage pipeline constraints.

Transco Zone 6 New York dropped $3.24 to $5.33, while in Appalachia, Tetco M3 Delivery dropped 80 cents to $4.85.

AccuWeather was calling for temperatures in Boston to hover in the 20s and 30s Tuesday and Wednesday before climbing into the 40s on Thursday. New York was expected to see temperatures in the low 30s Wednesday and highs in mid-40s Thursday.

PointLogic on Tuesday was expecting “roller coaster temperature volatility” in the eastern half of the United States this week transitioning to “prolonged wintry conditions” by the weekend, according to analyst Alan Lammey.

In its one- to five-day outlook Tuesday, PointLogic called for the period to open with a forecast population-weighted mean nationwide temperature of 40.6 degrees (0.8 degrees above normal).

“Daytime highs from Georgia to New England will be upwards of 10 degrees colder than average with temperatures in the upper 40s and low 30s, respectively,” Lammey said. “In fact, some areas of Boston are forecast to see up to six inches of snow. Meanwhile, daytime highs from Philadelphia to New York city will only reach the upper 30s, which is around five degrees colder than average.”

Lammey said the Midwest and Plains should “see a temporary warm-up” with highs across Missouri, Iowa, Kansas and Oklahoma forecast to come in around 10-15 degrees warmer than average.

“Out West, fairly impressive warmth will be spread throughout the region” including Denver, where temperatures “will reach the mid-60s, while Salt Lake City will be in the mid-50s and Phoenix will hover near 80 degrees,” Lammey said.

“Following this period of warmth, it appears that there will be multiple bouts of Arctic air moving southward” across the eastern half of the United States “in rapid succession” beginning around Friday, “with at least one (if not more) of the leading cold fronts making it all the way to the Gulf Coast in what will be a kickoff to an elongated period of fairly wild weather as well as notably colder overall conditions.”

Most points across the Midwest and Midcontinent fell Tuesday. Joliet dropped 8 cents to $3.18, while Northern Natural Ventura gave up 3 cents to $3.13. Meanwhile, NGPL Midcontinent added 17 cents to $2.85.

NGPL recently concluded a force majeure event at compressor station (CS) 102 in Beaver County, OK, according to Genscape Inc. The event, which began Saturday, had restricted northbound nominations through the pipeline’s CS 103, the firm said.

“NGPL reduced primary firm and secondary in-path firm transports to 66% of maximum daily quantities during the event. Capacity was returned to normal levels as of Intraday 2 cycle for Monday’s gas day,” according to Genscape.

Points in the Rockies and California followed up Monday’s losses by retreating further Tuesday amid widespread warmth in the western third of the Lower 48.

Cheyenne Hub gave up 8 cents to $2.58, while PG&E Citygate fell 3 cents to $2.85.

Genscape was calling for demand across California and Nevada to fall to around 5.9 Bcf/d this week versus a recent seven-day average of 7.36 Bcf/d.

Southern California Gas Co. was forecasting its utility system demand totaling around 2.5 million Dth/d this week versus receipts of around 2.6-2.7 million Dth/d.

SoCal Citygate fell 13 cents to $3.04, while SoCal Border Average dropped a dime to $2.64.

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