In its first day in the prompt-month position, the Nymex February gas futures contract was set to open nearly 20 cents lower Friday as frigid air continues to struggle to develop in long-range weather models.
The February contract was trading at $3.35 just before 9 a.m. ET, down 19.6 cents from Wednesday’s settle, which itself had strengthened significantly just before the close despite the lack of fundamental support for the rally.
At the core of recent overall weakness in the gas market is weather data that so far has yet to see a significant, sustained return to cold weather after a mild December. In fact, overnight weather models turned warmer for the both the near term and the long range.
Warm changes were seen in the six- to 10-day forecast, especially in the central United States during the mid-period, according to Radiant Solutions. This comes with model consistency in the timing and strength of low pressure breaking away from an Alaska trough early on and tracking along the Northern Tier, the firm said.
“This low will enhance downslope winds off of the Rockies, promoting temperatures in the much to near strong above-normal categories at that peak in the North-Central,” Radiant said. Prior to that, however, are below and much below-normal temperatures in the Midcontinent to start the period, with below-normal temperatures lingering into mid-period in Texas, it said.
Meanwhile, overnight weather model guidance continued to warm the long range as well, showing an unfavorable Pacific win out temporarily that would prevent any sustained cold weather from moving down into the East, according to Bespoke Weather Services.
Tropical forcing has trended slower as it continues to favor a positive Western Pacific Oscillation/Eastern Pacific Oscillation pattern upstream that can flood the country with mild, Pacific air, the firm said.
“Tropical forcing forecasts outside of seven to 10 days are notoriously unreliable, meaning that once models pick up on an eventual propagation, we would look for rapidly cooling forecasts, but that is not yet the case and the end of most models shows a pattern that is not threatening for cold even mid-month,” Bespoke chief meteorologist Jacob Meisel said.
Various weather models do show an impressive transition to a colder pattern Weeks 3-4, and on net, Bespoke continues to forecast a January that comes in slightly colder than average, “but warmth wins first.”
The firm indicated its sentiment sits between neutral and slightly bearish short term, as overnight weather model guidance was unimpressive enough to put a test of $3.25-$3.30 in play before any eventual bounce on cooling forecasts. Meanwhile, this morning’s storage print “should fit expectations and show a market that is modestly loosening in this warmer weather,” and daily balances have not yet shown much tightening with warmth still widespread today, Bespoke said.
The Energy Information Administration (EIA) is scheduled to release its weekly storage report at 10:30 a.m. ET. Estimates point to a withdrawal in the mid- to high 40 Bcf range, far below both the year-ago and five-year average draw.
Kyle Cooper of IAF Advisors projected a 45 Bcf withdrawal, Bespoke expected a 50 Bcf pull and Genscape Inc.’s composite estimate called for a 46 Bcf withdrawal, which would be loose by about 4.8 Bcf/d compared to the five-year average for degree days and normal seasonality. A Bloomberg survey of nine market participants ranged from a pull between 39 Bcf and 56 Bcf, with a median draw of 47 Bcf.
A withdrawal of 47 Bcf would leave gas stocks at 2,726 Bcf, which is 646 Bcf below the five-year average of 3,372 Bcf, according to EIA. Last year, a draw of 122 Bcf was reported, and the five-year average draw for the week stood at 121 Bcf.
Last week, the EIA reported a 141 Bcf withdrawal that left inventories as of Dec. 14 at 2,773 Bcf, about 20% below last year and the five-year average.
Bespoke’s Meisel said weather models continue to lose gas-weighted degree days and show a long-range pattern “that does not hold the kind of cold risks that could exacerbate lingering storage concerns.
“Eventually next week, we do expect weather to turn bullish, keeping us from fully turning our sentiment bearish here, but recent forecasts have been quite bearish and keep prices under pressure,” he said.
Crude oil futures were trading more than 40 cents higher at $45.06/bbl, and RBOB gasoline futures were trading less than a penny higher at $1.31/gal.