Natural gas futures seemed poised for a modest rally Tuesday but ultimately failed to launch as weather data eased off on the intensity of late-January cold. After trading as high as $2.255/MMBtu early in the session, an afternoon slump left the February Nymex futures contract at $2.187, up 0.5 cents on the day. March fell 0.7 cents to settle at $2.151.

In the spot market, a mild near-term demand outlook prompted generally minor day/day adjustments throughout much of the Lower 48; NGI’s Spot Gas National Avg. added 5.0 cents to $2.060.

Afternoon data from the European weather model “trended notably milder” from next Tuesday through Jan. 26 by predicting less cold air pushing into the northern United States, according to NatGasWeather.

“While a strong cold shot remains on track for next week in the European model, the milder break Jan. 23-26 was warmer than it had been showing,” the forecaster said, noting that this change equated to a 10 heating degree day (HDD) decline in demand expectations on top of a 6 HDD drop in the preceding overnight run.

“Clearly, the natural gas markets are disappointed to see this milder trend,” NatGasWeather said.

Meanwhile, looking ahead to this week’s Energy Information Administration (EIA) storage report, Energy Aspects is projecting a return to triple-digit withdrawals, issuing a preliminary estimate for a 106 Bcf pull for the week ending Jan. 10. Colder weather during the period led to increased demand across the residential/commercial (up 3.4 Bcf/d week/week), power (up 3.2 Bcf/d) and industrial (up 1.9 Bcf/d) sectors, according to the firm’s estimates.

“Beyond the milder-than-normal weather over much of the U.S. since the start of the year, strong year/year production growth continues to constrain withdrawals,” Energy Aspects said in a recent note. “Flow data point to Lower 48 output gains of 7.0 Bcf/d year/year to date in January, following 7.2 Bcf/d year/year December 2019 growth.

“This supply increase comes despite continued restrictions” on Appalachian flows through the Texas Eastern Transmission Co. (Tetco) system “due to in-line inspections and corrosion repairs. The work, which contributed to a 0.4 Bcf/d month/month decline from Appalachia to 32.4 Bcf/d in December, has begun to ease in the new year.”

Appalachian Basin output dropped off month/month for December, partly coinciding with the Tetco restrictions; what happens next should be telling, according to the firm.

“Whether production in the region rebounds in the coming weeks as Tetco work eases will indicate the degree to which maintenance was limiting output, or whether long-term market trends are finally coming home to the production roost,” Energy Aspects said. If regional production receipts later in January “trend back toward the 32.5 Bcf/d daily readings that were commonplace in early December, it can be assumed maintenance was the culprit for the weak output figures from late 2019.

“If flows stay depressed close to 32 Bcf/d, it is likely that November was the high-watermark for Appalachia production for the foreseeable future, given current prices are unlikely to spur investment. If that is the case, Lower 48 gas supply will have lost a key sequential growth engine for 2020.”

Weak Demand This Week

With many of the major natural gas consuming regions of the Lower 48 experiencing exceptionally mild temperatures this week, spot prices continued to languish in and around the $2-2.50 range for most regions. Benchmark Henry Hub picked up 6.5 cents to $2.130.

Analyst projections Tuesday showed a contrast developing between relatively light demand in the current week and much stronger demand expected by next week. Genscape Inc. said the “moderate restoration of normal weather” on tap for next week could prove enough to yield winter-to-date highs for demand.

Colder revisions in Tuesday’s forecast had the firm projecting national population-weighted degree days about 2-3 HDD colder than seasonal norms for days seven through nine of the forecast period. Genscape’s daily supply and demand projections showed demand potentially climbing to a peak of 121 Bcf/d by next Tuesday, which would be a new daily high for the 2019/20 winter.

In the meantime, Genscape estimated total demand of just under 91.6 Bcf/d for Tuesday, with demand expected to potentially reach 103 Bcf/d before the week is out. Month to date, demand is “still averaging just 93.9 Bcf/d, about 6 Bcf/d behind last year’s same date stretch and nearly 10.8 Bcf/d below the five-year average,” according to the firm.

NatGasWeather was looking for “very light national demand” over the next couple days as the coldest temperatures were expected to remain focused over the Northern Plains.

“High pressure over the South and East will bring much warmer versus normal temperatures” Tuesday and Wednesday, including highs in the upper 60s to 80s for Texas, the South and the Southeast, the forecaster said. From the Mid-Atlantic into the major cities in the Northeast, highs were expected to climb into the 40s to 60s.

From the Gulf Coast to the Southeast, trading points generally strengthened in line with Henry Hub Tuesday. Transco Zone 5 added 3.5 cents to $2.105, while Houston Ship Channel gained 5.0 cents to $2.030.

Meanwhile, a number of hubs in the Rockies and California continued to trade at substantial positive basis differentials amid widespread wintry weather impacting the western United States.

The National Weather Service (NWS) was calling for heavy snow over much of the Northwest the next few days, with “bitterly cold temperatures” predicted for parts of the Northwest into the Northern High Plains.

Pacific moisture moving inland “coupled with the presence of Arctic air filtering south from Southwest Canada will set the stage for significant winter weather impacts,” the forecaster said. “Areas of heavy snow can be expected for the interior of Washington, Oregon, the Northern Great Basin and the Central and Northern Rockies going through Thursday...Some accumulating snow will even be possible for the Seattle and Portland metropolitan areas.”

Northwest Sumas averaged $2.715, flat day/day, while Opal picked up 7.0 cents to $2.715. Malin added a penny to $2.725.