January natural gas futures were trading 10.7 cents higher at $3.690/MMBtu shortly before 9 a.m. ET as forecasters continued to point to signs of a shift to colder temperatures around New Year’s Day.
On Thursday the European weather model teased colder trends for the first few days of the new year that appeared to help rally prices after hours, according to NatGasWeather.
“Prices eased off modestly after the latest overnight European model backed off on the amount of cold Dec. 28-30, although it still shows decent cool shots arriving Dec. 31-Jan. 2,” the forecaster said. “No major changes overall with a mostly mild U.S. pattern through Dec. 29, then with stronger cooling across the northern and eastern U.S. Dec. 30-Jan. 3 and where it will play out either neutral or slightly bullish depending on just how much cold air arrives across the East.
“...What will be most important over the weekend break is just how cold weather systems Dec. 30-Jan. 2 will be, and then if reinforcing cold continues Jan. 4-7, which the weather data sees as becoming less likely.”
Uncertainty surrounding the potential for a shift to colder weather, as well as the timing and duration of any such cold shift, has contributed to “off-the-charts volatility” for natural gas futures recently, according to EBW Analytics Group CEO Andy Weissman.
“In addition, with many traders likely to take today off and even more not working Monday, followed by Christmas on a Tuesday, longs were quick to liquidate their positions after resistance held” Thursday morning, “adding to the downward price pressure,” Weissman said. “Evidence continues to mount, however, that a cold shift will occur in another 10-15 days. If the models continue to trend in that direction, natural gas prices could jump much higher either just before or just after Christmas.”
Meanwhile, the Energy Information Administration (EIA) on Thursday reported a 141 Bcf withdrawal from natural gas stocks, compared with a year-ago withdrawal of 166 Bcf and a five-year average pull of 144 Bcf. Total Lower 48 working gas in underground storage as of Dec. 14 stood at 2,773 Bcf, 697 Bcf (20.1%) below last year’s stocks and 720 Bcf (20.6%) below the five-year average, according to EIA.
Tudor, Pickering Holt & Co. analysts said weather-adjusted, “the market was 1.5 Bcf oversupplied (versus the adjusted trailing four-week average of 3.0 Bcf/d oversupplied). Lower production is driving the oversupply pullback, as production in the past two weeks has fallen 1.2 Bcf/d from early December flows, 88.5 Bcf/d.
“Despite Thursday’s production cresting at 88.0 Bcf/d, it remains to be seen if U.S. supply can hold up to heightened winter demand, especially as colder temperature masses migrate to the Northeast. The U.S. natural gas balance continues to be a weather-driven story, despite flashier headlines concerning anemic Mexican exports and untapped liquefied natural gas (LNG) export capacity.”
Analysts with Raymond James & Associates said the 141 Bcf pull “implies that the market was 3.4 Bcf/d looser than last year on a weather-adjusted basis, and it has averaged 4.2 Bcf/d looser over the past four weeks.
“...Longer term, we expect 2019 should prove to be a positive year for natural gas demand as both exports to Mexico and outbound LNG tanker activity ramp up,” the Raymond James analysts said. “On the supply side, more associated gas supply is expected. However, we believe an increasing domestic gas supply and growth in renewables that are increasingly becoming more cost competitive with gas are putting further pressure on Henry Hub gas prices.”
February crude oil futures were trading 57 cents lower at $45.31/bbl shortly before 9 a.m. ET, while January RBOB gasoline was down about 2.1 cents to $1.3011/gal.