Natural gas futures continued to sell off on Friday as an expected warmup and likely rebound in production over the weekend pressured prices. The March Nymex gas futures contract closed out the week at $2.410/MMBtu, off 4.6 cents on the day. April futures slid 4.2 cents to $2.480.

At A Glance:

  • February forecast seen bearish
  • Quick production recovery likely
  • Northeast cash plummets

In a blink-and-you-missed-it moment, spot gas prices in the Northeast, which topped $200 on Thursday, came crashing back down to earth on Friday. With the highest price in the region reaching only $15.000, the steep price discounts sent NGI’s Spot Gas National Avg. down $7.855 to $3.065.

Some of the most frigid weather in history is expected to continue through the weekend on the East Coast, but a swift rise in temperatures should quickly follow across most of the Lower 48. It’s this projected warmup that has prevented bulls from capitalizing not only on the widespread bitter conditions that hit the country in recent days, but also the steep decline in production that occurred as a result of freeze-offs.

On Friday, U.S. dry gas production was reported by Bloomberg at around 97.6 Bcf/d. Already, this is an increase from the 96 Bcf/d lows seen in recent days. Furthermore, if the ongoing rebound in production is anything like the recovery in December, it should be quick given the expected rise in temperatures.

NatGasWeather said the overnight and midday Global Forecast System (GFS) model lowered the amount of projected heating demand from the 15-day outlook. This closed the gap a bit on the much-warmer European model, which showed the period from Sunday (Feb. 5) to Feb. 17 tracking 80 heating degree days (HDD) warmer than normal.

Of course, the risk is that the European model has trended too warm and is susceptible to gaining back several HDDs, according to NatGasWeather. “But what will likely matter more is if the weather data is able to show a colder pattern at Feb. 18-22.” 

With only brief bouts of intimidating weather to meaningfully impact supply/demand balances this winter, the market continued to chip away at prices. After reaching $10 late last summer, futures on Friday hit a fresh intraday low of $2.341.

Mizuho Securities USA LLC’s Robert Yawger, director of energy futures, said there isn’t a low of technical support below until the two-year-plus wave of $2.238, which was reached on Dec. 28, 2020. What’s more, the March Nymex contract is trading below the beginning of the summer strip April contract. “Injection season is trading over withdrawal season,” Yawger said.

While much cheaper prices have favored natural gas gaining share of the energy demand stack to tighten up balances slightly, further support from weather may not occur until the last 10 days of February, based on the latest models.

That leaves plenty of time for storage inventories to recover from the past week’s likely steep drawdown.

That said, the Energy Information Administration’s (EIA) latest inventory report showed storage in strong shape regardless, with stocks sliding 151 Bcf for the week ending Jan. 27 to 2,583 Bcf. Even though the weekly pull came in slightly larger than expected, inventories stood 222 Bcf above year-earlier levels and 163 Bcf above the five-year average.

“The market is crashing for a good reason,” said analysts at The Schork Group.

Nearly three-fifths of the way through the winter, and the market has withdrawn less than half of last summer’s 2.262 Tcf injection. Storage is on pace to end the season around 1.78 Tcf, well above the EIA’s latest forecast of 1.49 Tcf and “leagues above” last year’s ending balance of 1.38 Tcf, the Schork analysts said.

With little in the weather data to convince the market that polar air may return – and stick around – the robust supply picture and lighter demand season ahead are formidable headwinds too. 

As such, “gas bulls have to lay low and hope for a contrarian rally in the spring,” the Schork team said.

Cash Quick To Rise, Quick To Fall

Spot gas prices sank from coast to coast as warmer weather was expected to quickly follow on the heels of the weekend’s polar outbreak across the Northeast.

Though the most bitter air was scheduled for Friday, traders looked to see a considerable warm-up in the forecast. After topping out in the teens on Saturday, the high in Boston was projected to hit the mid-40s on Sunday and low 50s by Wednesday. A similar temperature trajectory was expected for New York and across the Northeast.

Several pipelines in the region were bracing for the Arctic blast. Tennessee Gas Pipeline (TGP), Eastern Shore Natural Gas Co. and Transcontinental Gas Pipe Line Co. were among them. TGP also posted interruptible storage withdrawal restrictions at the Bear Creek storage field as of Friday’s evening cycle.

With heating demand set to fall in the coming days, though, cash prices in the region crumbled. Iroquois Zone 2 spot gas plummeted $129.530 day/day to average $8.120 for gas delivery through Monday. PNGTS also recorded a decline upward of $100, while Algonquin Citygate tumbled $62.400 to average $9.015. Transco Zone 6 NY fell to only $3.520.

Prices upstream in Appalachia followed suit, with the highest price in the region coming in below $4.000 and most averaging closer to $2.000.

Other locations declined as well, with sub-$3.00 gas seen across parts of the Southeast, Louisiana and Midwest. Prices were even lower in Texas.

Houston Ship Channel cash dropped 45.0 cents on the day to average $1.850 for the three-day gas delivery, while Waha fell 76.5 cents to $1.465.

Notably, after a sell-off in recent days, West Coast markets had returned to a level more on par with the rest of the country. The SoCal Border Avg. fell $1.620 day/day to average $3.795, while Northwest Sumas in the Rockies dropped 89.5 cents to $3.325.