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Natural Gas Futures Inch Higher Amid Hints of Colder East Later This Month

Forecasts advertising a potential shift to chillier conditions in the East later this month helped boost natural gas futures Tuesday, though prices ultimately finished well off the session’s highs. In the spot market, expectations for cooler temperatures in the Midwest and East later this week coincided with double-digit gains across the eastern two-thirds of the Lower 48; the NGI Spot Gas National Avg. climbed 19.0 cents to $2.855/MMBtu.

The February Nymex futures contract traded as high as $3.053 and as low as $2.947 before settling at $2.967, up 2.3 cents on the day. Further along the strip, the March contract settled 1.2 cents higher at $2.835, while April settled at $2.695, up 1.8 cents.

Bespoke Weather Services attributed the up-and-down price movements Tuesday to shifting warmer and cooler trends in the various weather model runs.

“The market is clearly jumpy” as colder trends in the Global Ensemble Forecast System (GEFS) “shot prices higher before European guidance pulled prices back lower,” Bespoke said. “And though we see the GEFS as likely too cold,” favoring European guidance more as of Tuesday, “we are seeing the colder trends at the end of the model run that fit with our overall pattern expectations.”

This includes the potential for a strong negative North Atlantic Oscillation downstream that could combine with a weak negative Eastern Pacific Oscillation upstream to “direct Arctic air across the Hudson Bay down into the East,” according to the forecaster. “...With production off highs and balances tightening up, this should be able to let the front of the natural gas strip rally even with storage concerns easing off after last week’s loose print.”

As winter weather has more or less failed to show up in the Lower 48 in recent weeks, a number of analysts have updated their long-term outlooks for natural gas prices, generally espousing a bearish long-term view.

Raymond James & Associates Inc.’s full-year Henry Hub forecast of $2.80/MMBtu for 2019 is about 5 cents higher than a previous prediction, and it also tweaked the 2020 forecast up by 5 cents to $2.30. Still, the big picture is bearish.

The better things get for oil prices, the worse they will get for gas, “exacerbated by the improving gas pipeline takeaway capacity from the Permian and Marcellus/Utica.”

Crude oil futures have shown signs of recovering after a holiday swoon, with prompt month Nymex West Texas Intermediate futures adding another $1.26 Tuesday to settle just shy of $50/bbl.

Jefferies LLC expects gas prices this year to remain volatile, driven by weather and low storage. In December, analysts increased their 2019 price forecast to $3.09/MMBtu from $2.80.

“With that change, we held off on adjusting our forecast for 2Q2019-plus, as we expect weather-driven volatility to continue until the market has a better handle on storage coming out of winter,” said the Jefferies team. December weather “clearly weighed on the February/March contracts.”

The recent sharp drop along the winter strip illustrates both the commodity’s weather-sensitivity and the bearish medium- to long-term outlook for gas prices, according to analysts with Tudor, Pickering, Holt & Co. (TPH).

“Season-to-date, this winter has been a tale of two halves,” marked by higher-than-normal heating demand prior to Dec. 14 and weaker demand since then, the TPH team said. “Despite inventories remaining at a 560 Bcf (about 17%) deficit to the five-year norm, warmer-than-normal temperatures are expected to continue through mid to late January.

“Though our updated U.S. supply model calls for a roughly 2.0 Bcf/d reduction in year-end 2019 natural gas volumes compared to our previous forecast, the U.S. natural gas market’s oversupply steepens in 2019 with an incremental 6.0 Bcf/d or so of supply versus an incremental 4.5-5.0 Bcf/d of demand,” the analysts said. “Over the past eight weeks, the market maintained a roughly 3.0 Bcf/d oversupply on a weather-adjusted basis. Given that an incremental 1.0-1.5 Bcf/d of natural gas would likely destabilize the market, we continue to see the need for natural gas companies to proactively reduce activity.”

East Gains Ahead Of Colder Temps

As colder temperatures were set to move in over the Great Lakes and East over the next several days, spot prices across most regions saw double-digit gains Tuesday. The largest increases occurred along the East Coast, where forecasts called for below-normal temperatures and wintry precipitation as the week progresses.

Radiant Solutions was calling for lows in Boston to drop from the mid-30s Wednesday into the teens by Friday, with similar declines expected further south along the Interstate 95 corridor, including lows in the 20s in New York City and in the lower 30s as far south as Atlanta.

“A disturbance moving across the Great Lakes is forecast to intensify significantly as it traverses New England” Tuesday night into Wednesday, the National Weather Service (NWS) said. “This will result in colder air to filter into the area, changing rain and freezing rain back to snow along with increasing winds from the north.

“Up to a foot of snow is possible across northern Maine by the time the storm moves further away into the Canadian Maritimes on Thursday. Colder air will usher into much of the eastern U.S. as the storm moves away and a high pressure ridge builds in from the Plains.”

Algonquin Citygate jumped 47.0 cents to $3.355 Tuesday, while Transco Zone 6 NY similarly surged 46.0 cents to $3.115. Further south, Transco Zone 5 picked up 48.0 cents to $3.225.

NatGasWeather said much of the country would continue to see mild conditions Tuesday before national demand increases during the second half of this week as a “cold blast currently pushing into the Northern Plains spreads across the Great Lakes and East Wednesday through Saturday. This will be followed by a reinforcing cold shot over the East late this weekend, although less impressive in some of the latest data.”

Prices also strengthened throughout the middle third of the Lower 48 as benchmark Henry Hub climbed 16.0 cents to $2.880. In the Midwest, where Radiant was calling for lows to drop into the teens in Chicago Wednesday and Thursday, Chicago Citygate added 18.5 cents to $2.735. In Texas, Houston Ship Channel added 13.0 cents to $2.820.

Further west, price moves were mixed throughout the Rockies and California. Opal added 1.5 cents to $3.115, while SoCal Citygate and SoCal Border Avg. fell 18.5 cents and 13.5 cents, respectively.

“An active weather pattern over the Northeast Pacific will continue to bring energetic weather systems onshore across the West Coast,” the NWS said. “Wintry precipitation will once again move across the Intermountain region while rain is expected to continue along the coastal Pacific Northwest into Thursday. The rain will extend as far south as Los Angeles Wednesday night.”

Southern California Gas was forecasting total demand on its system to fall below 2.8 Bcf/d by Thursday, down from levels well above 3 Bcf/d last week. The higher demand levels prompted a series of withdrawals from the restricted Aliso Canyon facility as the utility continues to navigate constraints on pipeline imports.

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