A decidedly mild temperature outlook for the first half of March sent natural gas futures grinding lower in early trading Friday. The April Nymex contract was down 3.6 cents to $2.741/MMBtu at around 8:50 a.m. ET.
Now that the market has had a chance to digest the 300-plus Bcf weekly withdrawal reported in the latest round of Energy Information Administration (EIA) storage data, the near-term outlook for natural gas “has turned distinctly bearish,” according to analysts at EBW Analytics Group.
“This morning’s weather forecast continues to trend warmer, adding to the loss of natural gas demand since the week began,” the EBW analysts said in a note to clients early Friday. “Production has also returned quickly, further increasing projected late-March storage.
“…With no obvious positive catalyst yet in sight, the April contract is likely to fall significantly further.”
The temperature outlook shifted warmer every day this week, and Friday’s forecast continued that trend, according to Bespoke Weather Services.
Both the American and European models “continue drifting warmer overall, pointing to a very low demand first half of March, thanks to above to much-above normal temperatures common from the Plains to the East,” Bespoke said. “Given the look of the pattern out of day 15, it looks more likely than not that the warmth continues into the 16 to 20 day period as well.”
The EIA on Thursday reported a monstrous 338 Bcf withdrawal from U.S. gas stocks for the week ending Feb. 19. Lower 48 inventories exited the week at 1,943 Bcf, 298 Bcf lower than year-ago levels and 161 Bcf below the five-year average.
Despite being one of the largest weekly draws ever recorded by EIA, the print was “greeted with apathy by the natural gas market,” analysts at Tudor, Pickering, Holt & Co. (TPH) observed.
“Interesting regional dynamics” have begun to emerge with this week’s report, the TPH analysts said. They pointed to “a massive South Central draw of 138 Bcf” that puts balances there 17% below five-year average levels, “while East levels are just 2% below and the Pacific region is at plus-13%.”
Longer term, the TPH analysts said they “remain firmly in the bullish camp” in terms of summer natural gas prices. However, “we don’t expect the next storage inflection point until mid-2Q2021, when a lack of supply growth coupled with rising cooling demand starts to drive an expanding deficit versus the five-year.”
April crude oil futures were off $1.08 to $62.45/bbl at around 8:50 a.m. ET, while March RBOB gasoline was down 2.1 cents to $1.8709/gal.
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