The continuation of bone-chilling cold in a number of high gas usage regions allowed February natural gas futures on Monday to rebound from Thursday’s storage report-induced slump. The prompt-month contract recorded a high of $5.894 in morning trade and went on to close out the regular session at $5.884, up 31.2 cents from Thursday’s finish.
The reversal Monday was made all the more extreme because it followed Thursday’s 13.7-cent drop, which was triggered after the market found out that only 124 Bcf was removed from underground storage during the Christmas week, which was at least 20 Bcf short of most industry estimates going into the report.
Looking at the contrast of the two trading sessions, Citi Futures Perspective analyst Tim Evans said traders were obviously looking forward by betting on the cold forecasts and not the past storage reports.
“The natural gas futures have bounced back from Thursday’s decline, with traders tending to forget the disappointing 124 Bcf net withdrawal from natural gas storage for the week ended Dec. 25 and focusing on the near-term forecast for intense cold east of the Rockies in the two- to five- and six- to 10-day periods,” he said.
Evans added that his take on storage remains “supportive” for futures through mid-month, enhanced by some “very easy” comparisons with the five-year averages. He noted that the five-year average draw for the weeks ending Jan. 1 and Jan. 8 are 78 Bcf and 79 Bcf, respectively. As of right now, the analyst estimates that 145 Bcf and 185 Bcf will be removed from underground stores during those two weeks.
For the moment weather bulls are firmly in control as forecasters expect an arctic juggernaut. “Yet another cold blast will impact millions of people later this week, and this arctic air mass will originate from even deeper in the Arctic,” said Accuweather.com meteorologists Jim Andrews and Meghan Evans. According to their analysis, residents of the Great Lakes region will deal with lake-effect snow showers and heavier snow bands with persistent blasts of frigid air, while people who live in the southern Plains and Florida will likely deal with another freeze.
The East can expect a modest reprise. “The weather will not be quite as harsh as recent days along the Eastern Seaboard, where highs will finally return to the 30s. Still, with a gusty breeze, Boston to New York City, Philadelphia and Washington, DC, will feel like the 20s and even the teens at times.”
With the winter chill extending its stay, cash prices Monday spiked in the Northeast, while pipelines began tightening restrictions with an eye to an extended period of below-normal temperatures and peak demand (see related story).
Thursday’s price plunge on the heels on an unexpectedly bearish Energy Information Administration inventory report showing a draw of 124 Bcf may be only temporary. “Last week’s activity leaves us with what looks like a kind of minor top. This comes fast on the heels of a breakout that confirmed an existing objective to more than $7.00/MMBtu,” said Peter Beutel, president of Cameron Hanover.
On the bearish side of the market ledger Beutel is mindful of great strides in drilling and says “the technology has advanced so far that gas-bearing formations can be tapped much more efficiently than ever before. Gas fields or pockets are exhausted more quickly and more thoroughly than in the past. The result is that there is more gas available than most had expected. And there are huge question marks ahead as we start to feel the effects of lower drilling activity.”
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