A warmer look from the overnight forecasts kept the pressure on natural gas futures in early trading Friday. The March Nymex contract was off 0.4 cents to $1.858/MMBtu at around 8:30 a.m. ET.
The weather data shifted warmer overnight versus Thursday’s midday runs, according to Bespoke Weather Services.
Both the American and European datasets “backed away from the Alaska ridge idea, reducing the amount of cold in the forecast over the next couple of weeks,” the forecaster said. “In fact, the pattern shown late in the 11-15 day period is one that hints at an outright warmer than normal pattern developing again as we move into the final week of the month.
“We made only a minor warmer change to our official forecast this morning, but it does appear that warmer risks may be increasing in the medium range,” Bespoke added. “Caution is advised, however, given the wild swings in the modeling over the last few days. It does still appear that the best chance for cold lies in the Central and Western states, with the East and Southeast staying warmer.”
Meanwhile, the Energy Information Administration (EIA) reported a 137 Bcf withdrawal from U.S. gas stocks for the week ending Jan. 31, to the bullish side of estimates but lighter than last year’s 228 Bcf withdrawal for the similar period. The five-year average is a withdrawal of 143 Bcf, according to EIA.
Working gas in storage as of Jan. 31 was 2,609 Bcf, 615 Bcf above last year at this time and 199 Bcf above the five-year average of 2,410 Bcf, according to EIA.
“Historical degree day correlations continue to break down as this week’s numbers imply a nearly 5 Bcf/d undersupplied market, which stands in stark contrast to our view of current supply/demand balances,” analysts at Tudor, Pickering, Holt & Co. (TPH) said of the latest EIA data. “We believe reduced flows from Canada are a partial driver of the breakdown, along with power burn, where demand is up about 1.7 Bcf/d year/year through January in what is typically trough season for the power gen market.
“The gains are being driven by Northeast and Midwest markets, where discounted gas volumes are pricing out coal, suggesting sub-$2 prices could be unsustainable” without a decline in utilization of liquefied natural gas (LNG) export capacity.
Exports both via LNG and to Mexico have been strong, totaling 15 Bcf/d combined during the recent EIA report period, according to TPH estimates.
“However, both are showing weakness for next week’s print, down 0.7 Bcf/d combined,” the analysts said.
Looking at the technicals, bulls will want to keep prices above $1.804, according to ICAP Technical Analysis analyst Brian LaRose.
If they can do so, “the sideways to higher drift is free to continue. That said, to have a shot at prices moving higher rather than just sideways both the .146 and .236 retracements at $1.965 and $2.064 must be exceeded,” LaRose said. “Still peg $1.730, $1.679-1.677 and $1.611 as the immediate steps to the downside if the bulls cannot find their footing here.”
March crude oil futures were down 59 cents to $50.36/bbl at around 8:30 a.m. ET, while March RBOB gasoline was off fractionally to $1.4948/gal.