With natural gas bulls finding solace in strong demand from exports even as winter weather continues to disappoint, futures recovered some of their recent losses in early trading Tuesday.
The January Nymex contract was up 4.5 cents to $2.350/MMBtu at around 8:45 a.m. ET. February was up 5.2 cents to $2.378.
The overnight weather data trended somewhat warmer, maintaining a bearish temperature outlook through Jan. 11, according to NatGasWeather.
In time, the weather models could add to demand expectations for the eight- to 15-day time frame, but “it would need to be a massive amount to undo the damage done by recent warmer trends,” the firm said. “We continue to look to Jan. 12-14 as the next best opportunity for more impressive cold to arrive into the U.S., and it will need to if sustained colder-than-normal temperatures are to finally cash in on a tighter year/year supply/demand balance.”
While liquefied natural gas (LNG) exports have been strong, “the damage done by another two-week period of above-normal temperatures will have a much greater negative impact on supplies,” NatGasWeather said.
U.S. LNG feed gas flows have remained steady at more than 10 Bcf/d, according to estimates from Genscape Inc. The firm’s estimate for Tuesday’s volumes clocked in at 10.74 Bcf/d, the highest level since a recent peak of 11.01 Bcf/d recorded on Dec. 13.
Tuesday’s LNG volumes are also 250 MMcf/d above the prior seven-day average, Genscape analyst Josh Garcia said in a note to clients.
“The majority of the gains have been from Corpus Christi LNG, where today’s demand level of 1.94 Bcf/d is 234 MMcf/d higher than its seven-day average,” Garcia said. “Pending revisions, this marks 14 consecutive days with feed gas demand over 10 Bcf/d.”
Even after the steep sell-off to open the week, analysts at Tudor, Pickering, Holt & Co. (TPH) said they still see potential for $3 Henry Hub prices in 2021. They pointed to “tightness in the LNG market,” which suggests “greater utilization” through the second and third quarters of 2021.
“Rolling the warmer forecasts into our supply/demand model, we see end-of-winter storage at 1.9 Tcf and peak storage increasing to 4.0 Tcf,” the TPH analysts said. “However, a meaningful offset is expected from power generation as the current $2.50/MMBtu strip drives about 1.5 Bcf/d of coal to gas switching versus our prior forecast that was run on an early December strip of $2.80/MMBtu.”
TPH analysts said they expect overseas market dynamics that have led to a drawdown in European storage below last year’s levels to open up “an opportunity for U.S. LNG utilization to push 90% through 2Q2021/3Q2021 versus our prior expectations of 65%. At 90% utilization, our end of October storage projection falls to just 3.0 Tcf…and our pricing expectation would rise to around $3.10/MMBtu to balance the market through gas to coal switching.”
February crude oil futures were up 45 cents to $48.07/bbl at around 8:45 a.m. ET, while January RBOB gasoline was up about 1.3 cents to $1.3808/gal.
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