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Natural Gas Futures Disappointed Again as Ominous Cold Looking Less Likely

Natural gas market bulls can’t catch a break as warming trends in the latest weather models provided another blow to futures and some cash markets on Monday. Lingering chilly weather across the northern half of the country, however, kept cash prices there relatively supported. The NGI National Spot Gas Average fell a penny to $2.54/MMBtu.

Nymex March futures opened the session lower at $2.554 but recovered ahead of midday weather forecasts, only to be disappointed that weather models maintained an exceptionally warm ridge over the southern and eastern United States from Feb. 19-26, according to NatGasWeather. The March contract settled at $2.552, down 3.2 cents on the day. April was down 1.8 cents to $2.579.

Monday’s price action “did little to instill conviction in either bulls or bears, it would seem” yet the team at Bespoke Weather Services said it holds its slightly bullish sentiment as yet again post-settle, later contracts along the strip were pressing higher.

“The market appears to be trying very hard to set in a bottom just above the 52-week low at $2.52”, and given market tightening at these low price levels as well as cold weather risks in the long term, the forecaster expect prices to have more room to rally rather than fall during the coming week.

Interestingly, Monday’s weakness along the Nymex futures curve left the March contract at a slight discount to April. While the discount is rather small at less than 3 cents, typically in a market where storage inventories are well below prior year and five-year average levels, March would be priced notably higher than April.

“The market sees milder weather updates and strong production, and little else is in consideration,” said Mobius Risk Group analyst Zane Curry. “Keep in mind the amount of net speculative length that remains in the market. This makes it hard for a material bid to show up. Bulls become sellers who then look for another opportunity to reload.”

Meanwhile, last-minute colder trends in a number of days during the week ending last Friday (Feb. 9) resulted in a bit more heating demand than previously expected, and some in the market are boostingtheir storage withdrawal projections for Thursday’s report from the U.S. Energy Information Administration.

Bespoke said it is now forecasting a 178 Bcf withdrawal from inventories for the week ending Feb. 9, although it said the coming report “looks to be the last of the large withdrawals for at least a few weeks.”

Indeed, while there will still be shots of cold air into the western and central United States during the next couple of weeks, those systems do not spread far enough east, according to forecaster NatGasWeather. “The next opportunity for more ominous and sustained cold into the eastern half of the country isn’t likely until after Feb. 27-28,” it said.

Bespoke analysts agreed and said early indications point to no signs for significant cold through March. The forecaster is “not all that bullish” on how much weather-driven demand the month can bring, but it does have more bullish risks than the next couple of risks seem to hold.

Even with Monday’s pullback, March futures held above the 12-month low of $2.52, although that price level “certainly seems in play” given the heating demand losses that have resulted from the warmer weather outlooks, Bespoke said.

The Harrison, NY-based weather forecaster noted that the March contract is “incredibly oversold and searching for support,” and these low prices appear likely to induce additional demand as well, which would tighten the market.

Even with no significant cold arriving, Bespoke expects even average heating demand as enough to help prices bounce off their recent lows. Prices in the $2.70-2.75 could quickly be in play this week if gas-weighted degree days “stop shedding...on a daily basis,” it said.

Demand for the week ending Feb. 15 is expected to average 81.2 Bcf/d, about 4 Bcf/d lower than a week ago, according to PointLogic Energy. This drop in demand comes as average temperatures across the Lower 48 are forecast to average 45.9 degrees F, about 5.5 degrees higher than temperatures during the prior week.

The following week (ending Feb. 22) is expected to see demand erose even further, falling to an average 77.7 Bcf/d as temperatures edge up to a national average of 47.4 degrees, the company said. In fact, the only region that shows a hint of an increase in demand during that week is the West, where demand is projected by PointLogic to increase by 0.4 Bcf/d on a marginal week-to-week temperature drop of 0.6 degrees.

Meanwhile, liquefied natural gas (LNG) exports have remained steady at 3.2 Bcf/d since Jan. 24, but the recent shut-downof two storage tanks at Cheniere Energy Inc.’s Sabine Pass LNG facility could potentially affect exports.

The shutdown was ordered by the Pipeline and Hazardous Materials Safety Administration after several issues were discovered in January by employees and federal officials. Cheniere subsidiary Sabine Pass Liquefaction LLC was ordered “to take the necessary corrective actions” to protect the public, property and the environment from potential hazards associated with the releases.

A thorough assessment is required before the company may seek permission from the Federal Energy Regulatory Commission to return the tanks to service. Each of the five tanks has 3.4 Bcfe capacity, a total of 17 Bcfe.

As of Tuesday, PointLogic's tracking showed that the action had not affected LNG feed gas shipments to the facility for export. However, it is unknown whether an extended delay would rein in demand slightly.

Meanwhile, pipeline exports to Mexican have been on the rise, reaching close to 4.5 Bcf/d on several occasions over the past two weeks. Feb. 7-9 saw three days in a row at about 4.5 Bcf/d, PointLogic said.

In the spot market Monday, prices were mixed as the cold weather that continues to blanket the northern tier of the country supported prices there. In New England, Algonquin Citygate shot up $1.72 to average $4.82, while Iroquois zone 2 jumped 16 cents to $2.88.

AccuWeather showed daytime temperatures in Boston plunging back to the freezing mark on Tuesday after reaching a high of 43 on Monday. By Thursday, however, temperatures are expected to reach the upper 50s.

Data and analytics company Genscape Inc. is forecasting New England demand will hit 3.40 Bcf/d on Tuesday before falling to weekly low of 2.59 Bcf/d on Thursday.

Transco Zone 6 New York spot gas was up 9 cents to $2.77 as AccuWeather showed temperatures in the Big Apple topping out in the mid-30s on Tuesday before rising to the low 60s by Thursday. In the producing region, Dominion South averaged $2.19, a drop of 6 cents on the day.

Demand in the greater Appalachia region is expected by Genscape to hit 15.96 Bcf/d on Tuesday and then slide to a weekly low of 10.81 Bcf/d by Thursday.

Pricing hubs in the Rockies posted gains of less than a nickel, with Kingsgate and Opal each edging up 4 cents to average $2.13 and $2.34, respectively.

In California, Southern California Citygate jumped 41 cents to average $2.90, while Pacific Gas & Electric Citygate climbed 9 cents to $2.64. Genscape showed statewide demand reaching 6.22 Bcf/d on Tuesday and slipping to a low of 6.02 Bcf/d by Friday.

The $2.56 price level had a bullseye of sorts on it on Monday as both the benchmark Henry Hub and the Houston Ship Channel dropped a nickel and a penny, respectively, to arrive there.

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