With the latest guidance easing demand expectations and failing to deliver sustained cold into the second week of February, March Nymex natural gas futures were trading 3.1 cents lower at $2.872/MMBtu shortly before 9 a.m. ET Wednesday.
Models dropped some heating degree days (HDD) from the outlook overnight but maintained the overall timing of major weather features expected for the United States over the next two weeks, according to NatGasWeather.
“A record-breaking Arctic blast continues across the Midwest, Ohio Valley and Northeast, only to be followed by rapid warming this weekend through the middle of next week,” the forecaster said. “Another strong cold blast is expected across the Midwest and Northeast late next week, Feb. 7-9, followed by a mild break Feb. 10-11 before a cold shot follows Feb. 12-14.”
After this week’s polar cold and next week’s mild break, NatGasWeather said it views the Feb. 7-14 pattern as “relatively neutral...due to a mix of cold shots and milder breaks.
“Natural gas prices are several cents lower overnight, likely seeing the weather data lose several HDDs over the next 15 days,” NatGasWeather said. “The markets are clearly saying they want sustained cold if prices are to rally and convincingly retake $3, and the overnight data failed to trend notably colder to provide justification for it.”
Heading into Wednesday’s trading, EBW Analytics Group CEO Andy Weissman pointed to two developments that paint a potentially “bleak picture” for bulls.
“First, the forward curve for March through November of this year is almost completely flat, with just an 8.2 cent spread between the March and November contracts,” Weissman said. “This eliminates any incentive for marketers to retain gas in storage.
“Second, at the same time that the coldest weather in many years is heading into the mid-section of the country, prices at Henry Hub continued to fall yesterday, shedding 9.5 cents to average $2.95,” he said. “This weakness is ominous. By this weekend, demand is expected to fall by more than 25 Bcf/d from today’s peak. Even if widespread freeze-offs occur, this steep decline is likely to put significant further downward price pressure on the March contract.”
As for the current cold blast sweeping through the Lower 48, Genscape Inc. said its modeled estimate for Energy Information Administration Midwest region demand climbed to 36.61 Bcf/d Wednesday, the highest single-day total since at least 2014.
“The Chicago metro area could be on track to post its highest demand numbers in history for Jan. 29,” analyst Matthew McDowell said. “Pending revisions to nominations data for remaining intraday cycles or no-notice, Tuesday’s 5.1 Bcf demand number could only be topped by larger demand today.
A sample of interstate pipeline demand points shows cold-driven demand in the Chicago area has nearly doubled the five-year average, McDowell said.
“The Midwest is forecast to exceed 2014 polar vortex HDD values today and tomorrow, which are forecast at 79 and 75 HDDs respectively,” the analyst said. “These extreme values could drive basis towards polar vortex or 2018 bombogenesis levels, but the short duration and relative geographic limitation of the cold is likely to limit upside risk.”
March crude oil was trading 54 cents higher at $53.85/bbl shortly before 9 a.m. ET, while February RBOB gasoline was trading about 2.1 cents higher at $1.3723/gal.