As overnight forecasts continued to show colder-than-normal temperatures lingering deep into March and depleting stockpiles, natural gas futures were trading slightly higher early Friday. The April Nymex futures contract was up 1.4 cents to $2.880/MMBtu shortly after 8:30 a.m. ET.
The overnight weather data affirmed colder trends in the 11-15 day outlook period, according to Bespoke Weather Services. The forecaster pointed to a strengthening in the positive Pacific/North American teleconnection and negative Eastern Pacific Oscillation signal in the medium range.
With the Madden-Julian oscillation signal “projected to fade, this overall pattern type makes sense, although the exact intensity of cold, as well as duration, remains to be determined, as there is no blocking on the Atlantic side to assist in locking in the cold,” Bespoke said. “Either way, it will not be nearly as intense as the cold we saw early this week,” but it should keep gas-weighted degree days above normal in the medium range.
“Sentiment this morning is neutral, as we see a continued colder than normal weather pattern over at least the next couple of weeks further fueling concerns over low storage levels, but at the same time, we also see balances that are loosening as the strongest cold is behind us and production gradually recovers from recent freeze-offs.”
The Energy Information Administration (EIA) on Thursday reported a 149 Bcf pull for the week ended March 1, larger than the 60 Bcf withdrawal recorded for the year-ago period and a five-year average pull of 109 Bcf. Total Lower 48 working gas in underground storage stood at 1,390 Bcf as of March 1, down 243 Bcf (15%) year/year and 464 Bcf (25%) below the five-year average, according to EIA.
Late-season cold has lowered the expected end-of-season carryout total. Intercontinental Exchange end of draw index futures settled Thursday at 1,040 Bcf, down 60 Bcf week/week.
“Over the next couple weeks, temperatures are expected to remain below normal as the inventory deficit is expected to deepen,” analysts with Tudor, Pickering, Holt & Co. (TPH) said in a note to clients Friday. “Week/week, U.S. dry natural gas production is down about 800 MMcf/d due to production freeze-offs in the Permian and Rockies,” while liquefied natural gas (LNG) exports remain about 1.0 Bcf/d higher than the trailing 30-day average.
“All-in, the market was more than 1.0 Bcf/d undersupplied, and over the past four weeks has trended toward a slight oversupply (less than 1.0 Bcf/d),” the TPH team said. “Nevertheless, we are quickly approaching the shoulder season and while natural gas may have avoided a doomsday scenario, we still expect 2019 peak storage to be more than 500 Bcf above last year’s mark.”
According to analysts with Raymond James & Associates Inc., the 149 Bcf draw implies the market was 2.4 Bcf/d looser than last year on a weather-adjusted basis, and the market has been 4.2 Bcf/d looser on average over the past four weeks.
“Longer term, with associated gas production remaining robust, the market needs only modest supply growth from Appalachia (and likely declines in most other gas plays) to balance,” the Raymond James team said. Exports to Mexico and a ramp-up in LNG tanker activity should be positive for gas demand this year, but “we believe increasing domestic gas supply and growth in renewables that are increasingly becoming more cost competitive with gas are putting further pressure on Henry Hub prices.”
April crude oil futures were down $1.39 to $55.27/bbl shortly after 8:30 a.m. ET, while April RBOB gasoline was off about 4.9 cents to $1.7566/gal.