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Near-Term Cold Boosting Demand as Natural Gas Futures Called Higher

January natural gas futures were trading 9.3 cents higher at $4.550/MMBtu shortly before 9 a.m. ET, with short-term cold offering support for the bulls as forecasters pointed to mixed trends in the weather data overnight.

Bespoke Weather Services viewed the overnight guidance as “incredibly mixed” but did note “convincingly colder” long-range trends from the European model, showing a “more active southern storm track” that would result in gas-weighted degree days (GWDD) closer to seasonal averages.

Early morning guidance from the Global Ensemble Forecast System, however, “trended far warmer, showing the potential for this warmer pattern to have staying power easily through Dec. 20 and pull GWDDs more convincingly below average,” according to the forecaster.

In terms of balances, Bespoke said weather-adjusted demand has looked “quite tight” with the recent cold and pointed to production data easing off recent highs.

“Cold intensity eases slightly the next couple of days, which may provide some looser data, and Canadian imports are ramping back up even as production takes a dip, so balances will look looser once production returns...without long-range warm risks looking as significant the market can more easily shake them off, though if anything we still see them as trending more intense with below average GWDDs seemingly likely to last through around Dec. 25,” Bespoke said.

EBW Analytics Group CEO Andy Weissman attributed Tuesday’s rally to the current cold snap and “programmed trading continuing to test the upper end” of the recent trading range.

“Atypically, little weight was given to the expected return of much warmer weather” during the eight- to 15-day outlook period, Weissman said. “This morning’s forecast shifts are subtle. While the overall change is tiny, the near-term cold pattern is expected to last slightly longer and the warm period to follow has shifted a tad cooler. In response, the market is continuing to probe higher this morning.

“Still, weather models are calling for an extended warm period beginning in another week, potentially lasting seven to 10 days. While the test of the upper limits of the recent trading range is not yet over, absent a major forecast shift prices are likely to start softening again later this week.”

As for the near-term cold, the Energy Information Administration’s (EIA) East storage region is “facing weather-driven demand upside” this week as average temperatures in the greater region have fallen 17.5 degrees since Monday, according to Genscape Inc. analysts Josh Garcia and Dominic Eggerman. The firm’s East demand sample for Wednesday came in at 33.7 Bcf/d, 10.5 Bcf/d higher versus Sunday.

“As expected, Northeast residential/commercial comprises the bulk of demand, but power burns remain a strong contributor in the Southeast, where electric heating is prevalent,” the analysts said. “While this hasn’t been the peak of this winter’s demand, which came in at 35.7 Bcf/d on Nov. 28, this demand should be sustained with the cold front expected to last until mid-December.”

January crude oil was trading 5 cents lower at $53.20/bbl shortly before 9 a.m. ET, while January RBOB gasoline was trading fractionally lower at $1.4415/gal.

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