- Weather models continue to warm
- Storage seen ending March well below 2 Tcf
- Cash prices rebound as brief cold front set to hit Lower 48
Price action in the Nymex natural gas futures market on Friday was about as thrilling as watching paint dry. After sideways action throughout much of the day, the April Nymex futures contract settled at $2.771, off six-tenths of a cent from Thursday’s close. May closed unchanged at $2.809.
Spot gas, which traded Friday for gas delivery on Monday, was mostly higher on an approaching cold front seen pushing into the Lower 48. NGI’s Spot Gas National Avg. climbed 9.0 cents to $2.645.
Friday’s dip for the Nymex curve was the seventh straight day that futures ended the session in the red. The extended decline largely was attributed to increasingly warm weather outlooks for March, with Friday’s weather data upholding the balmy outlook.
Bespoke Weather Services said the forecast shifted a little warmer each day of the past week, with Friday being no exception. The American and European weather models continued to drift warmer, pointing to low demand in the first half of March, thanks to above- to much-above normal temperatures expected from the Plains to the East.
“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, with very little in the way of any cool air source showing up thanks to a Pacific pattern that is quite hostile for cold,” Bespoke said. “This is the pattern type that has dominated the season, save for the previous two weeks which were cold.”
The forecaster said the market, because it has turned the page to March, may be ignoring the weather “a little too much,” and its effect on storage levels. With production fully restored following the winter storm in February, Bespoke sees the risk that end-of-March storage winds up at or above 1.6 Tcf, “and may do so rather easily at this rate, which is higher than many market estimates out there.”
Fresh off reports of the second largest storage draw on record, Mobius Risk Group said as the market begins March, total inventories will likely be down to 1.8 Tcf, year/year and production growth stagnant. Furthermore, April prices are tracking a modest 5% under October, and “ghosts” of the recent winter storm and “daily price volatility will remain.”
If March heating degree days hold a similar delta versus normal as that of the first 10 days of the month, storage draws would undoubtedly be weak, but only relative to normal weather, according to Mobius. “Regardless of how warm March is, the odds of finishing the withdrawal season anywhere close to 2 Tcf are essentially nonexistent, while the risk of falling sub 1.5 Tcf are at least 60% if not greater.”
EBW Analytics Group noted that the South Central region and South Central salt storage featured the largest recorded regional and sub-regional draws. The 83 Bcf salt storage withdrawal is particularly consequential, according to the firm.
“Salt storage inventories have reached a two-year low, with another sizable draw likely occurring” for the week ending Friday (Feb. 26), EBW said. “Storage levels nationally have fallen to 161 Bcf below the five-year average, with the South Central region alone constituting a 141 Bcf deficit to five-year average levels.”
Eventually, the market is seen attempting to pare the deficit, but it may prove difficult, according to the firm. It said natural gas is projected to be undersupplied by 4.1 Bcf/d over the next 10 weeks.
“As the deficit expands further, the market may be forced to eventually rapidly adjust prices higher,” EBW said.
Tudor, Pickering, Holt & Co. (TPH) also sees tailwinds for the gas market, particularly for summer prices. With Gulf Coast liquefied natural gas demand expected to be strong this summer, it bodes well for Henry Hub, according to analysts. The team remains “firmly in the bullish camp” on summer gas pricing, but it doesn’t expect the next storage inflection point to be until the middle of 2Q2021, when a lack of supply growth coupled with rising cooling demand starts to drive an expanding deficit versus the five-year average.
“For the next two months, it’s possible a lack of catalysts allow prices to drift lower and, if so, we’d use the opportunity to add long exposure into the summer and an undersupplied winter which could see the return of $4.00 gas,” the TPH analysts said.
Spot gas prices were higher Friday as a cold front was forecast by around Monday to push toward the Midwest, Great Lakes, Ohio Valley and Northeast. The chilly conditions were expected to linger through Tuesday, with temperatures forecast to fall below zero in some areas for a quick bump in demand.
As the cold blast was expected to be quick moving, price gains did not pack nearly the same punch as they did during the prolonged Arctic event last month. Chicago Citygate spot gas climbed only 5.5 cents to $2.585 for gas delivery on Monday. Similar increases were seen in the Midcontinent and throughout Louisiana.
Parts of East Texas notched slightly stronger gains, with Carthage moving up 10.0 cents to $2.515 for Monday’s gas day.
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