With major weather models Friday continuing to show a shift to colder temperatures for key markets later this month, natural gas futures rallied sharply to set up a potentially pivotal weekend for prices. In the spot market, East Coast points eased off after recent weather-driven gains as prices remained steady across most other regions; the NGI Spot Gas National Avg. slumped 17.0 cents to $3.005/MMBtu.
February Nymex futures settled at $3.099 Friday, up 13.0 cents. Unlike sessions earlier in the week, the bulls managed to hold their ground as the front month closed decisively above the $3 mark, capping off a steady rally that began to pick up steam after lunchtime on the East Coast. Further along the strip, March added 13.2 cents to settle at $2.945, while April settled at $2.769, up 6.3 cents.
NatGasWeather highlighted much colder trends for Jan. 20-25 from the latest weather models Friday, with the milder European model adding an “impressive” amount of projected heating demand for the 15-day outlook period.
This put the European model in better agreement with the more bullish Global Forecast System (GFS), which earlier in the day had advertised the potential for “several frigid cold shots with at least some polar air” to track into the northern and eastern United States during this period, according to the forecaster.
“While we see the risk being toward colder trends over the weekend, it’s a dangerous weekend to hold because of the sharpness in the temperature gradient between frigid polar air over Canada and much milder air over the middle U.S.,” NatGasWeather said. “Thus, a slight shift in this gradient in either direction would lead to changes in forecasted heating demand
Meanwhile, 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.
Societe Generale as of Friday had revised lower its projected 1Q2019 average price to $2.98 after the recent sell-off in the winter strip. Analyst Breanne Dougherty said the selling was likely driven by managed money players reducing their long positions (though the government shutdown has meant no Commodity Futures Trading Commission data to confirm).
“We see 1Q2019 as still exposed to upside volatility (off this lower baseline of $3) if a cold snap presents itself between now and the end of February; and our view on the remainder of 2019 remains bearish with the end of injection season 2019 as vulnerable to weak prices tied to storage containment fear,” Dougherty said.
Moderating East Coast
After sharp gains coinciding with a stretch of colder temperatures moving in earlier in the week, East Coast gas buyers showed limited interest in locking in deals for delivery over the weekend.
Radiant Solutions was calling for below-normal temperatures to continue along the Interstate 95 corridor over the weekend before moderating somewhat by the start of the upcoming work week. New York City was expected to see average temperatures climb from the upper 20s Friday and Saturday to the mid-30s by Tuesday and Wednesday. Further south, the forecaster called for average temperatures in Atlanta to warm slightly to near-normal levels by the end of the weekend, including highs in the 50s by Tuesday.
Transco Zone 6 NY shed $1.140 Friday to average $3.850, while in Appalachia Texas Eastern M-3, Delivery dropped $1.300 to $3.570. In the Southeast, Transco Zone 5 tumbled 87.0 cents to $3.705.
A weather system with rain and snow was expected to track through the Southern Plains and Texas Friday before moving across the Tennessee Valley, Southeast and Mid-Atlantic coast over the weekend, NatGasWeather said Friday.
“At the same time, cool conditions will linger across the Northeast to keep national demand near normal through the weekend,” the forecaster said. The upcoming week will “bring mostly mild conditions across the southern two thirds of the U.S., with light winter demand where highs will be mostly in the 50s to 70s.” Most demand in the week ahead should come from “glancing blows of cold Canadian air” hitting the northern United States, but this would be “more intimidating if sub-freezing air dipped just a little further into the U.S.”
Prices were generally steady Friday across most of the Gulf Coast and Texas. Houston Ship Channel added 10.0 cents to $2.915.
In the West, SoCal Citygate sold off sharply heading into the weekend, dropping 61.5 cents to average a still-elevated $4.320 as other price moves in the Rockies and California were mixed. Utility Southern California Gas was calling for demand on its system to total around 2.9 Bcf/d over the weekend, versus pipeline receipts of around 2.7-2.8 Bcf/d.
Further upstream in West Texas, Waha slid 19.5 cents to $1.810.