Warming trends from forecasts over the weekend, albeit with hints of potential colder temperatures for key U.S. regions later this month, pressured natural gas futures lower in early trading Monday. The February Nymex contract was down 3.8 cents to $2.662/MMBtu at around 8:45 a.m. ET.
After previously offering different outlooks on the upcoming pattern, the major weather models resolved their differences over the weekend, ultimately favoring the European model, according to analysts at EBW Analytics Group. This would delay “the earliest cooling by nearly a week” and result in a “large loss in natural gas demand” for the next two storage weeks, they said.
“If this were the end of the story, natural gas futures might be expected to drop sharply. But it’s not,” the EBW analysts said.
Models now agree on a shift to a negative Eastern Pacific Oscillation later this month, providing a bullish signal, according to EBW.
“Further, even with the bearish weekend model shift, the year/year storage surplus is still likely to largely evaporate this month,” they said. “While futures are initially trading lower this morning, therefore, they could still hold onto some of last week’s gain.”
Bespoke Weather Services similarly noted warming trends from forecasts over the weekend.
“The nearer-term forecast, with no quality cold source anywhere in North America, rolled forward warmer,” Bespoke said. “…Once we do see a true cold source develop up in Canada, it looks to impact the less populated western U.S. rather than the eastern half, keeping national demand no better than near normal in such a scenario.”
This led the firm to remove 15 gas-weighted degree days from its projections compared to Friday’s forecast.
Still, “models do maintain some negative North Atlantic Oscillation tendencies into late month” that could lead to some cold in the West shifting eastward. This “keeps the medium-range pattern interesting, and could mean some additional run-to-run model volatility this week,” Bespoke said.
Meanwhile, Wood Mackenzie observed freeze-offs impacting production from the Permian Basin and in various Rockies plays coinciding with a cold front over the weekend. Analyst Nicole McMurrer noted “low levels of freeze-offs” primarily in the Bakken Shale, the Green River Basin, the Denver Julesburg Basin and the San Juan Basin.
“Temperatures in the Permian have fallen quickly over the last two days,” leading to declines in the firm’s Spring Rock production estimate out of the region, McMurrer said. “While there may be minor freeze-offs present, especially in the New Mexico side of the basin, local demand is also causing a decrease in the production estimates, which are derived from pipeline nomination scrapes.
“Typically, production scrapes fall with quick changes in temperature as gas receipts from intrastate systems decrease as the gas is absorbed by those systems to meet local demand.”
February crude oil futures were off 55 cents to $51.69/bbl at around 8:45 a.m. ET, while February RBOB gasoline was down about 3.1 cents to $1.5118/gal.
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