• Friday’s decline ended a five-day streak of positive finishes
  • Weather forecasts for late January shifted warmer
  • U.S. LNG volumes were above 11 Bcf and near record levels

Natural gas futures faltered on Friday, ending a five-day streak of positive finishes. Traders focused on a shift in weather forecasts that pointed to a potential delay in the onset of widespread freezing temperatures from early in the third full week of January to later in the month.

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The February Nymex gas futures contract settled at $2.700/MMBtu, down 2.9 cents day/day. March shed 3.5 cents to $2.656.

NGI’s Spot Gas National Avg. eked out a modest gain, rising 1.5 cents to $2.780.

Bespoke Weather Services said Friday its latest outlook drifted warmer than forecasts earlier in the week. “This not only has warmed up the nearer-term outlook but has delayed the attempt in the 11- to 15-day to generate a true cold air mass up in Canada,” the firm said. “The market is clearly tiring from the can getting kicked down the road. We do still think a colder period can come late month, but damage to the bull weather case is being done by virtue of this nearer-term warming, for now.”

Bespoke said the latest forecast overshadowed reports of flat production and continued robust demand for liquefied natural gas (LNG) exports. LNG volumes on Friday were above 11 Bcf and near record levels for a fourth consecutive day, according to NGI data. Frigid temperatures and low domestic supplies in Asia are propelling strong demand for U.S. LNG.

Markets entered January anticipating strong heating demand in January, following relatively mild conditions in December. Analysts say harsher winter temperatures in the Lower 48 are needed to complement export demand and drive steady, steep declines in gas stockpiles over the next several weeks.

The U.S. Energy Information Administration (EIA) on Thursday reported a withdrawal of 130 Bcf from storage for the week ended Jan. 1. Though substantial, it was shy of the mid-130s Bcf decrease forecast in major polls. The latest withdrawal reduced inventories to 3,330 Bcf, yet stocks remained above the year-earlier level of 3,192 Bcf and above the five-year average of 3,129 Bcf.

Analysts at Tudor, Pickering, Holt & Co. (TPH) estimated a roughly 2 Bcf/d oversupplied market for the period based on historical degree day correlations.

While the covered week landed between the Christmas and New Year holidays, cutting into power generation and Mexican exports that have both since recovered, the TPH analysts said above-average temperatures affected the latest pull and remain an ongoing concern.

“Degree days for the week were 8% below norms and continue the unimpressive streak of weather that has cumulative degree days for the withdrawal season also down 8%,” the TPH analysts said, adding that inventories are at the highest level for this time of year since 2016.

“Under a normal weather scenario, we see storage balances still capable of drawing to the five-year average by the end of the injection season, and at such a level we see $3.00/MMBtu representing fair value,” the TPH analysts said.

The murky economic outlook, clouded by the coronavirus pandemic, also remained a pressing concern.

While vaccine distribution efforts are now well underway, public health officials say it would take months to inoculate enough people to quell the virus outbreaks that have resulted in thousands of deaths each day and stunted economic activity.

The United States on Thursday recorded more than 4,000 deaths tied to Covid-19, the disease caused by the novel virus. It marked a single-day record, according to Johns Hopkins University data.

With the virus surging in recent weeks and new restrictions on businesses in dozens of states, the United States shed 140,000 jobs in December, the Department of Labor said Friday in its monthly employment report. 

Chief investment officer Jack Ablin of Cresset Capital Management noted that President-elect Biden has vowed to ramp up inoculation efforts during his first 100 days in office, hoping to end the pandemic and open a path for full economic recovery by summer.

However, Ablin said, any delays or major vaccination hiccups in coming weeks “would push back reopening dates, leading to economic and financial disappointment,” and likely further pressuring the job market.

Cash Prices

With the exception of a few hubs in the Northeast, where high temperatures hovered in the 30s on Friday, spot gas prices were generally up or down only a few cents.

The National Weather Service noted that conditions were chilly but comfortable for January across most of the Lower 48, with highs ranging from the 30s to 60s. High temperatures were expected to dip into the 20s in parts of the northern United States over the weekend but then warm back up again.

In the Northeast, Algonquin Citygate gained 54.0 cents day/day to average $3.860 and Tenn Zone 6 200L climbed 46.5 cents to $3.885.

Elsewhere, gains and losses were measured in a few cents. In the Midwest, Chicago Citygate fell 3.0 cents to $2.610 and Dawn declined 3.5 cents to $2.565.

In Texas, El Paso Permian advanced 2.5 cents to $2.655, while Katy declined 5.0 cents to $2.680.

On the pipeline front, Wood Mackenzie noted that, starting Tuesday and continuing through Wednesday, Cheniere Energy Inc.’s Corpus Christi Pipeline in Texas would be performing scheduled maintenance at its Sinton Compressor Station. The firm expects operational capacity to be limited to 1.86 Bcf/d. It estimated that limitation would impact roughly 128 MMcf/d of feed gas deliveries to Cheniere’s Corpus Christi LNG facility based on the prior seven-day flow average.