February natural gas managed to gain ground Friday as weather forecasts showed impending cooler conditions in eastern and north-central states. At the close February had risen 8.2 cents to $3.062 and March had added 8.1 cents to $3.098. February crude oil eased 25 cents to $101.56/bbl.

In spite of the day’s gain, observers don’t see much in the way of further advances. “It’s been a tough time and there hasn’t been anything vaguely like a rally,” said a Washington, DC-based broker. “[Friday] was barely a recovery, so I don’t think there will be much [price improvement] going forward, and I think it’s going to take some time for this thing [market] to work itself out if the economy improves.”

The broker said demand was robust with natural gas conversions taking place and talk of exports, but “the supply side is so strong it looks to me that prices will go lower. Making it worse, there are no [heating] degree days. NOAA [National Oceanic and Atmospheric Administration] said that the Middle Atlantic states had 405 fewer degree days than normal thus far this season starting on July 1. That’s 19% below normal and is huge. Overall, the country is 13% below normal. Everything militates against prices moving higher.

“We are looking at objectives below at $2.80 and maybe $2.67, so it’s hard to see what kind of rally you could have, and we think the best you could see would be $4.50 on a cold snap or something of that sort.”

When queried if he was aware of any producer response to the current low price regime he said, “We are not hearing of anyone shutting in. It’s easy to talk about but hard to do. You’ve got investors, and I don’t know how well that would go over to say, ‘I’m going to stop production because I don’t like the price.’ There are also a lot of fixed costs to deal with.”

A reduction in supplies does not appear to be a concern just yet as drillers seemed unwilling to curtail activity. For the week ended Jan. 6, Baker Hughes reported that the number of active gas-directed rigs rose by two to 811, well below the 914 rigs active a year ago. The total U.S. rigs active was unchanged at 2,007, but a full 18% more than the 1,700 drilling one year ago. The number of active horizontal rigs fell seven to 1,160, still significantly more than the 966 in operation a year earlier.

Forecaster WSI Corp. of Andover, MA, in its 11- to 15-day outlook predicts cooler temperatures north of a broad arc stretching from Virginia to South Dakota to Idaho to Southern California. “Below-normal temperatures are expected over the northern tier of the U.S. as well as along the West Coast. [Friday’s] forecast is colder over the northern tier of the U.S. than indicated [Thursday, and] the West Coast is also cooler while the south-central U.S. is warmer.

“Temperatures could still run even colder than forecast over the north-central and eastern U.S. if GFS [Global Forecast System] ensemble models verify. They depict the strongest high latitude blocking in association with a negative WP (West Pacific)/AO (Arctic Oscillation) pattern. The European [model] has made some trends in this direction but generally indicates a more negative PNA [Pacific North American pattern] phase (with the main cold risk in the Midwest to Northeast). The Canadian [model] is somewhat of a compromise.”

For the remainder of the withdrawal season, if weather can’t give a boost or at least support prices, the supply dynamic is going to have to assert itself. That may be problematic at least in the short run. Jim Ritterbusch of Ritterbusch and Associates sees the rig count figures as something of a long-term impact and not likely to have a major influence on prices any time soon.

“[A] supply side response to below-cost pricing should always be viewed as a slow mover and not necessarily a development capable of spiking prices. A more salient supply side element through the rest of this month will continue to be an expanding supply surplus that is likely to result in a burdensome overhang that will still exist at the end of the withdrawal cycle in a couple of months. In sum, we are leaving open the possibility of a further upside run next week of as much as 15-18 cents from [Friday’s] close that could easily be followed by a renewed downswing into fresh low territory,” he said in closing comments to clients.

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