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Higher Confidence of Shift to Cold in Late January; Natural Gas Futures Called Higher

With the latest overnight data increasing confidence in the prospect of cold temperatures arriving by the final third of January, February natural gas futures were trading 7.7 cents higher at $3.046/MMBtu shortly before 9 a.m. ET.

Overnight weather model guidance continued to show cold trends for the Week 2 outlook period, according to Bespoke Weather Services.

“The result is increased confidence yet again both in a significant cold shot centered around Jan. 20 and a clear trend colder throughout the final third of January” that may help keep gas-weighted degree days above average, Bespoke said. “...Next week’s storage number is projected to be a touch tighter than what was announced yesterday, and we see storage withdrawals increasing into the end of the month as cold weather arrives.

“While not enough to really stoke low storage fears, this can turn cash prices stronger and continues to indicate any dips below $3 get bought with both $3.10 then $3.25 in play.”

EBW Analytics Group CEO Andy Weissman also viewed the overnight forecasts as showing a more definite colder shift, with below-normal temperatures returning Jan. 20 and continuing for at least two weeks.

“This shift, if it persists, should be enough to finally push the February contract past resistance at $3.05,” Weissman said. “Given the market’s cautious approach and the build-up in storage inventories over the past month, though, the ride higher is likely to be limited unless cold weather persists further into February.”

The Energy Information Administration (EIA) on Thursday reported an 87 Bcf withdrawal from U.S. gas stocks for the week ended Jan. 4, a number that fell on the bullish side of expectations, but it was much lighter than the year-ago and five-year average withdrawals. Total Lower 48 working gas in underground storage stood at 2,614 Bcf as of Jan. 4, 204 Bcf (7.2%) below year-ago levels and 464 (15.1%) below the five-year average, according to EIA.

“Compared to degree days and normal seasonality, an 87 Bcf withdrawal is loose by over 4.0 Bcf/d,” Genscape Inc. analysts Margaret Jones and Eric Fell said.

Compared to the last seven New Year’s storage weeks -- not including last year because of exceptional demand during the “bomb cyclone” event in the East -- the 87 Bcf pull is loose by more than 31 Bcf, according to the analysts.

“In the last seven years, only the New Year’s week of 2011 was more mild yet had a slightly larger withdrawal,” Jones and Fell said. “...Total power generation was up around 10 average GWh as Christmas week rolled into the New Year. Nuclear and renewable generation was down slightly by 1 average GWh as wind dropped off 4 average GWh and hydro was up around 2 average GWh, with nuclear and solar up slightly as well.

“Coal was down around 8 average GWh, and gas was up 18 average GWh week/week for an estimated 3.5 Bcf/d more gas burn” versus last week.

February crude oil futures were trading about 33 cents lower at $52.26/bbl shortly before 9 a.m. ET Friday, while February RBOB gasoline was down about 1.3 cents to $1.4176/gal.

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