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Forecasts Deliver Bearish Start to 2023 as Natural Gas Futures Plunge
With forecasts through the first half of January sinking weather-driven demand expectations to open the new year, natural gas futures were down sharply in early trading Tuesday.
The February Nymex contract was off 41.8 cents to $4.057/MMBtu at around 8:45 a.m. ET.
Weather data over the weekend advertised a pattern that would deliver mild temperatures and result in lighter than normal natural gas demand throughout the first half of January, according to NatGasWeather.
“The reason for such light national demand is most of the southern half of the U.S. and up the Mid-Atlantic Coast will see highs in the 60s and 70s most of the next 15 days,” NatGasWeather said. Forecasts further showed “very little coverage of daytime highs below freezing over the northern U.S. besides the lower population Northern Plains and Northern Rockies.”
As bears try to take out the $4.00 mark for the February contract, it’s possible “buyers step in on technically oversold conditions or other factors,” the firm added. However, “one thing is certain. If there were to be sustained strength in natural gas prices early this week, it most certainly would not be due to cold enough U.S. weather patterns.”
With bearish weather trends “continuing unabated” into the start of 2023, EBW Analytics Group estimated a resulting 235 Bcf drop-off in weather-driven demand since mid-December.
In the wake of a “massive decline” for natural gas futures, “a relief rally is possible anytime,” EBW analyst Eli Rubin said. “Technical support near the psychological $4.00 level cannot be ruled out. Daily heating demand could recover 17 Bcf/d from Tuesday to Friday. Speculator short positions at 10-week highs are likely to take profits after an apparent bottom has formed.”
From a fundamental standpoint, however, natural gas has further room to the downside on a seasonal basis as the market reassesses diminished winter upside price risks, Rubin said.
“Weather is fickle, and a short-term bounce is possible, but the outlook for natural gas is bearish for the new year,” Rubin said.
Meanwhile, looking at the supply picture, Northeast production appears to have recovered from freeze-off impacts associated with last month’s Winter Storm Elliot, according to Wood Mackenzie estimates.
“Temperatures warmed over the holiday weekend, lifting freeze-off impacts in the Northeast, with today’s production estimate at around 34.1 Bcf/d for the region,” Wood Mackenzie analyst Laura Munder said. “However, impacts are still ongoing in the Rockies, concentrated in North Dakota and Montana.” A decline of around 400 MMcf/d was observed for those areas, “which we typically see continue into the spring.”
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