• February Nymex futures up 3.2 cents to $1.934; March up 3.0 cents to $1.908
  • “If we continue seeing the weather forecast progress warmer...the balance alone will not be enough to allow the market to put in a bottom”: Bespoke
  • “Even now, with injection season contracts averaging near $2.10, our view is still that the forward curve is overvalued given the fundamentals,” says Energy Aspects
  • Southern California spot prices ease lower despite new import restriction

Despite warmer trends in the weather models, natural gas bulls managed to take back a few cents in the futures market Tuesday, drawing support from tighter balances. The soon-to-expire February Nymex contract settled at $1.934, up 3.2 cents; March gained 3.0 cents to settle at $1.908.

In the spot market, a short-range forecast showing generally mild temperatures for this time of year produced a mix of price moves; NGI’s Spot Gas National Avg. added 2.5 cents to $1.780.

Front-month prices appeared to find support Tuesday from “firm cash once again” and from a “continuation of tight balances,” according to Bespoke Weather Services.

“It was also expiration day for options in the February contract, which often adds in some erratic price action as well,” Bespoke said. “It appears the market tried to target a settle on the $1.95 strike,” but weather models Tuesday “all went warmer, which finally took a toll and allowed prices to slide a couple of cents lower into the close.

“...The tighter balances should generally hold with these low prices, but if we continue seeing the weather forecast progress warmer over time, as we have the last two months, the balance alone will not be enough to allow the market to put in a bottom,” the forecaster said. “This appears to be the risk as we move forward, as we have still yet to see a meaningful change in the high latitude pattern to allow colder air to move into key areas of the U.S. As such, we could easily see a new prompt-month low once March takes over as the prompt month.”

Even a sustained stretch of colder-than-normal temperatures beyond the first week of February could have a limited demand impact, Energy Aspects analysts said in a recent note to clients.

“We ran our models assuming 5% and 10% colder-than-normal weather from Feb. 7 through the end of February,” they said. “Under the 10% colder-than-normal scenario, our balances indicate an additional 135 Bcf of residential/commercial, industrial heating and power load demand. Under the 5% colder-than-normal scenario, the number is closer to 75 Bcf.

“With all else being equal, even the overtly bullish 10% scenario would still leave our end-March inventory just above 1.7 Tcf,” the Energy Aspects analysts said. “While such cold would likely also spur more production freeze-offs, the end-season carryout would still not have been reduced enough to fundamentally change the landscape heading into the injection season.”

That said, the “incredibly short” net position of speculators raises the possibility of a temporary move up in prices driven by short covering, according to the firm.

“Even now, with injection season contracts averaging near $2.10, our view is still that the forward curve is overvalued given the fundamentals,” the analysts said. “With such a large inventory overhang, the market will likely be compelled to work some of that down ahead of the start of cooling season.”

Meanwhile, liquefied natural gas (LNG) feed gas demand continues to climb to new heights. Genscape Inc.’s estimates showed pipeline deliveries to export terminals setting a new daily record high Tuesday, with aggregate nominations just under 9.13 Bcf/d.

“Recent days’ volumes have been somewhat volatile with operational upsets at Sabine Pass, but the ramp in operations at Freeport that began mid-month along with a recovery in deliveries to Cameron have boosted the top-day number,” Genscape senior natural gas analyst Rick Margolin said.

“Month-to-date aggregate deliveries are now averaging 8.1 Bcf/d, which is just about 0.15 Bcf/d below” the firm’s supply and demand forecast heading into the month, the analyst said.

NGI’s LNG Insight similarly estimated 9.4 million Dth/d of total deliveries to U.S. LNG export facilities for Tuesday, up from 9.24 million Dth/d for Monday and 8.99 million Dth/d for Sunday.

Cash Prices Steady

Spot prices were steady throughout the Midwest and Midcontinent Tuesday, with most hubs trading within a nickel of even. Joliet slid 1.0 cent to $1.815.

The National Weather Service (NWS) predicted that “the contiguous U.S. will remain void of any Arctic air masses through the remainder of the week.” The forecaster said temperatures should grow cold enough for snow over parts of the Central Plains.

“Snowfall amounts are forecast to be light, with a couple inches through Wednesday morning,” the NWS said. “...Meanwhile, light wintry precipitation is expected to spread eastward across the Northern Plains on Thursday near and ahead of a warm front. Elsewhere, a stationary front lingering across the Great Lakes is expected to bring light amounts of snowfall across the region through Thursday.”

Northeast hubs traded at relatively depressed levels, but a number of locations did post day/day gains. Algonquin Citygate added 28.5 cents to $2.355, while Tenn Zone 6 200L picked up 6.0 cents to $2.340.

Maxar’s Weather Desk was calling for temperatures along the Interstate 95 corridor to cool slightly over the next few days. Boston was expected to see low temperatures drop from the mid-30s on Tuesday down into the mid-20s by Thursday. Lows in the mid- to upper 30s in Washington, DC, Tuesday were expected to drop to just below freezing by Thursday.

In the Southeast, Transco Zone 5 gained 5.0 cents to $2.075. Appalachian prices also strengthened modestly Tuesday, with Dominion South adding 4.5 cents to $1.620.

Elsewhere, discounts were the norm on the West Coast Tuesday, particularly in Southern California.

SoCal Citygate prices eased lower Tuesday, absorbing any upward pressure exerted by a new capacity reduction through Southern California Gas’ (SoCalGas) L-235 import line. SoCal Citygate averaged $3.000, down 11.0 cents.

SoCalGas recently identified a “safety related condition” on its L-235 import line requiring a 170 MMcf/d capacity reduction through its Topock/Needles Area Zone.

According to Genscape, posted firm operating capacity for this zone had been 438 MMcf/d, and it had averaged 450 MMcf/d in the 30 days prior to this reduction.

SoCalGas was projecting demand on its system of around 2.7 million Dth/d over the next several days, down slightly from demand of around 2.8 million Dth/d for Monday.