An increase in projected demand from the European weather model overnight helped spark gains for natural gas futures in early trading Thursday. The February Nymex contract was up 6.5 cents to $2.487/MMBtu at around 8:45 a.m. ET.
As of early Thursday, the European weather model had gained more than 15 heating degree days over the previous 24 hours, while the American Global Forecast System (GFS) model added less demand and maintained a more bearish outlook, according to NatGasWeather.
“National demand will ease to light levels this weekend through next week as the amount of subfreezing air over the U.S. wanes,” the firm said. “There will still be weather systems bringing rain and snow, but mainly over the West and at times the Plains and southern U.S. This is where the overnight GFS remains quite mild with only modest bouts of cooling through Jan. 12, while the European shows a similar overall upper pattern but with colder weather systems comparatively.”
The gap between the models in terms of projected heating demand suggests that either the American model will add demand or the European model will lose demand to resolve their differences.
“This will be important ahead of another long holiday break,” NatGasWeather said, adding that the midday model runs are likely to be “closely watched” by traders.
Also likely to garner the interest of traders is this week’s Energy Information Administration (EIA) storage report, scheduled for 10:30 a.m. ET Thursday. Analysts are expecting another larger-than-normal draw. Major surveys have been clustering around a pull in the mid-120s Bcf. Last week, EIA reported a 152 Bcf draw that lowered stocks to 3,574 Bcf, which is 278 Bcf above year-ago levels and 218 Bcf above the five-year average.
For the coming EIA report, a Bloomberg survey of nine analysts showed an unusually wide range of withdrawal estimates from as low as 88 Bcf to as large as 150 Bcf, with a median of 126 Bcf. A Wall Street Journal poll showed estimates within that same range, with an average of 129 Bcf. A Reuters poll of 16 market participants showed withdrawals as low as 85 Bcf, but the median was near those of other surveys, at 125 Bcf. NGI pegged the pull at 124 Bcf.
Last year, the EIA recorded an 87 Bcf draw for the similar week, while the five-year average is a 102 Bcf draw.
“It was warmer than normal over most of the country” during this week’s EIA report period, “especially so across the Midwest/Plains,” NatGasWeather said. “Our algorithm predicts a draw of 121 Bcf, to the bearish side.”
Looking at the supply picture, Wood Mackenzie’s Lower 48 production estimate has dropped below 90 Bcf/d for the first time since mid-December, the firm told clients early Thursday. The firm estimated total dry gas production at 89.9 Bcf/d for Thursday, the lowest since output was recorded at 89.5 Bcf/d on Dec. 17.
“Production is coming off a recent peak of 91.7 Bcf/d on Dec. 29, and production has fallen 1.8 Bcf/d since then,” Wood Mackenzie analyst Josh Garcia said. “Losses have been centered around the South Central, which has lost around 1.4 Bcf/d in the last two days. Our pipe data summary shows that this has been centered around Texas, with our Texas daily production model losing 1.5 Bcf/d in the last two days, with the Gulf of Mexico flat and the Gulf Coast up over that time period to make up the difference.”
February crude oil futures were off 42 cents to $47.98/bbl at around 8:45 a.m. ET, while January RBOB gasoline was down about 1.4 cents to $1.3978/gal.
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