Natural gas futures were trading several cents lower early Friday amid a “disappointing” overnight shift in the major weather models, which adopted a warmer outlook through the first week of February. The February Nymex contract was down 4.5 cents to $1.881/MMBtu shortly after 8:30 a.m. ET.
The overnight guidance, particularly the European model, shifted milder, according to NatGasWeather. The European data showed a warmer pattern for the northern part of the country around Feb. 3-7, while the American data also came in warmer for around Feb. 6-8, the forecaster said.
“This is a bearish development, as the natural gas markets were likely expecting or hoping for stronger demand after Feb. 4, and any backing off after five weeks of bearish weather is likely to be viewed as disappointing,” NatGasWeather said. “Essentially, the weather data would need to trend back colder Feb. 4-7 or bearish weather headwinds will continue through the first week of February.”
The warmer trends in the forecast early Friday set the stage for a test of support as low as $1.85, according to analysts at EBW Analytics Group. Potentially “more important” is the possibility for a shift in expected gas-weighted heating degree days for the Feb. 7-13 time frame, they said.
“Model guidance this morning is all over the map, split between much colder and much warmer solutions than currently shown,” the EBW analysts said. “This model chaos could clarify over the weekend, setting the stage for another move up for natural gas -- or significant further losses early next week.”
Meanwhile, this week’s Energy Information Administration (EIA) storage report showed a 92 Bcf withdrawal recorded for the week ended Jan. 17, well shy of the five-year average withdrawal of 194 Bcf. However, after adjusting for weather the print pointed to continued undersupply in the market, according to Tudor, Pickering, Holt & Co. (TPH).
“After three weeks of lackluster withdrawals to start the year, inventories now sit at a 9% surplus to the five-year average, and cumulative withdrawals have totaled only 245 Bcf, 90 Bcf below 2019 and about 300 Bcf below the five-year average,” TPH analysts said in a note to clients.
“On a positive note, U.S. supply continues to retreat from its December highs, averaging 94.5 Bcf/d this week,” while liquefied natural gas feed gas demand “reached a new high water mark” Thursday at 9.1 Bcf/d. “The U.S. gas market also enjoyed another week in undersupply territory, with weather-adjusted historical degree day correlations actually implying a modest increase in the undersupply to 3 Bcf/d, from 2.5 Bcf/d last week.”
Even so, the TPH analysts project a return to oversupply conditions prior to the start of the injection season.
March crude oil futures were trading 35 cents lower at $55.24/bbl shortly after 8:30 a.m. ET, while February RBOB gasoline was off fractionally to $1.5548/gal.