• Futures rebounded on increases in expected heating demand 
  • LNG export volumes recovered after declines the prior week
  • Cash prices climbed amid a fresh round of winter storms

After a bruising run a week earlier, natural gas futures rebounded Monday on substantial increases in expected heating demand over the weekend and a fresh bout of winter weather settling in across parts of the Midwest on Monday.

markets

The February Nymex gas futures contract jumped 15.6 cents day/day and settled at $2.602. The prompt month had dropped 10% over the prior week. March rose 14.2 cents to $2.598 on Monday, also recovering from a slump a week earlier.

Of last week’s activity, analysts at The Schork Report said, “the fact traders are unwilling to pay a premium to own gas for the final two delivery months of winter is as fundamentally bearish as it gets,” given that gas demand is typically the strongest in winter.

Observers said hints of a cold finish to winter, however, were enough for futures to reverse course on Monday. “The supply/demand balance remains tight for when weather cooperates,” NatGastWeather said.

NGI’s Spot Gas National Avg. advanced 9.0 cents to $2.730.

After a week of warming shifts in weather forecasts, model changes over the weekend turned back colder for the final week of January and into early next month, lifting expectations for a run of stronger heating demand.

Bespoke Weather Services estimated an additional 15-20 gas-weighted degree days over the next couple weeks. “Some of these colder changes were for this week, not just far out in the more unreliable extended forecast,” the firm said. But the change marked “a decent step away from the big warmth we saw” in outlooks last week.

Given a “reasonably supportive” supply/demand balance, “we could see further upside as we head into February expiration Wednesday, keeping in mind that we have rallied into the expiration of the last two contracts.”

U.S. liquefied natural gas (LNG) export volumes also recovered Monday, climbing to around 11 Bcf after dipping down near the 9 Bcf level late last week. Challenges created by several days of heavy fog near Cheniere’s Sabine Pass LNG facility temporarily minimized activity.

EBW Analytics Group said the combination of colder weather with LNG strength could result in robust storage withdrawals in the coming weeks, supporting futures.

“At least for now, the downside risk appears significantly lower and the odds for colder mid-February weather are increasing,” EBW analysts said. “With the storage surplus continuing to decline, gas prices could strengthen.”

The U.S. Energy Information Administration (EIA) last Friday reported a withdrawal of 187 Bcf for the week ended Jan. 15, the steepest pull of the season.

Analysts at Tudor, Pickering, Holt & Co. (TPH) said “power generation demand continues to be a bright spot as soft seasonal gas pricing and a recent drop in wind generation contributed to record seasonal power burn for the report week.”

Analysts generally expect a smaller decline with this week’s EIA report – mild weather permeated much of the country in the covered week – but cooler conditions could result in large declines with storage reports after that.

Next week’s EIA report, reflecting the current week’s balances, “looks to be starting on the right foot, with the highest residential/commercial numbers observed so far this winter,” according to TPH.

The EBW analysts noted already dwindling supplies in the South Central region, in particular. The year/year storage comparison “has tightened every week since Thanksgiving to flip to a 17 Bcf deficit” with the most recent EIA report. The latest withdrawal of 31 Bcf from South Central salt storage was the largest since March 2019, the firm noted.

Since the storage week ending Nov. 28, the South Central region has averaged 3.5 Bcf/d tighter year/year. “While recent cold weather in the South Central helped to accelerate drawdowns, local fundamentals have tightened considerably with higher LNG exports, a weakened local supply picture, and modest gains in pipeline exports to Mexico,” EBW noted.

Cash Climbs

Spot gas prices cruised higher across the Lower 48 as colder conditions swept across the West and Midwest, bringing lows near zero on Monday in northern markets such as Minneapolis. Forecasts showed the cold wave moving east as the week progresses.

NatGasWeather called it “a messy” pattern this week “as numerous weather systems track across the country with rain and snow…As this system finally tracks through the East mid-week, colder air over the Midwest will spread south and eastward with lows of 0s to 30s for stronger national demand.”

Several hubs in the Midwest posted solid gains Monday, with Chicago Citygate up 10.5 cents day/day to average $2.485 and Lebanon ahead 11.0 cents to $2.450.

In the Midcontinent, OGT gained 22.0 cents to $2.505. Prices were also strong as far south as Texas, where El Paso Permian gained 16.5 cents to $2.500.

Wood Mackenzie analyst Joe Bernardi noted that even Southern California is expecting a cold snap this week.

Meteorologists “are forecasting significantly colder-than-normal temperatures for the Golden State, with the coldest weather coming Tuesday and warming slightly from there,” Bernardi said. “Southern California is expected to be especially cold relative to its norms this week,” with lows in the 40s.On Monday in California, prices at SoCal Citygate jumped 45.0 cents to $3.875, while SoCal Border Avg. gained 19.0 cents to $2.925.