Natural gas futures traded in a narrow range much of Friday, ultimately culminating another sluggish week with a loss amid mild weather and elevated production levels. The February Nymex gas futures contract settled at $3.174/MMBtu, down 10.1 cents day/day. March lost 8.8 cents to $3.036.

At A Glance:

  • Prompt month sheds 10 cents
  • Heating demand proves elusive
  • Elevated production holds steady

NGI’s Spot Gas National Avg. shed 27.0 cents to $4.825.

The prompt month futures contract finished the week down 7% from the prior week’s close. This reflected unseasonably warm weather across much of the eastern half of the country through much of January to date, along with strong production that steadily held around 100 Bcf/d.

However, colder weather may soon arrive, bolstering heating demand and potentially interrupting production, NatGasWeather noted. It projected fresh arctic air arriving in the week ahead and potentially carrying into early February.

Ahead of Friday trading, both the American and European weather models added heating degree days for that period, according to the firm.

“National demand will increase to strong levels as cold air over the central U.S. spreads into the East,” NatGasWeather said. 

However, the American model “remains notably colder” than its European counterpart for the Jan. 28-Feb. 2 time frame, according to the firm. The European dataset shows less “coverage of subfreezing temperatures, especially over the South and East, as it favors a stronger ridge, effectively blocking colder upstream air.”

If winter shifts into an enduring stretch of cold, StoneX Financial Inc.’s Thomas Saal said any bargain hunting could swiftly morph into a genuine rally, given that hedge funds are net short on natural gas and could dive back into buying mode on signs of bullish momentum.

“Prices could move pretty far and pretty fast,” Saal, senior vice president of energy, told NGI.

Still, he added, bears have plenty on their side, including recent weak storage prints that reflect anemic mid-winter demand so far. 

EBW Analytics Group’s Eli Rubin, senior analyst, agreed.

“On a seasonal basis, there is little fundamentally to excite bulls at present. Technical indicators and oversold conditions suggest a bounce is possible, but every recent attempt to move rapidly higher has succumbed to bearish fundamental pressure,” Rubin said. “With gas production up 6 Bcf/d year-over-year and Freeport LNG offline, storage surpluses may continue to expand even during modestly supportive colder February weather.”

Freeport, Storage Woes

The Freeport liquefied natural gas export plant in Texas, forced offline in June following a fire, is expected to complete repairs by the end of this month, according to the facility’s management. This would enable it to ramp up 2 Bcf/d of capacity within weeks, drawing gas from domestic supplies and compensating for the mild weather start to 2023.

However, the Freeport LNG relaunch was originally planned for last year – and was delayed twice. This has left analysts dubious about its return in January.

Meanwhile, the U.S. Energy Information Administration (EIA) on Thursday reported a storage decrease of 82 Bcf for the second week of January. It compared bearishly with a five-year average draw of 156 Bcf and a year-earlier pull of 203 Bcf.

The decrease for the Jan. 13 week lowered inventories to 2,820 Bcf but left stocks above the five-year average of 2,786 Bcf. Analysts at the Schork Report called it a “meager” pull. It followed a rare January injection of 11 Bcf reported for the first week of the month.

Regarding the latest EIA print, “On a weather-adjusted basis, we estimate the market was 4 Bcf/d oversupplied after tracking more than 5 Bcf/d oversupplied the week prior,” analysts at Tudor, Pickering, Holt & Co. (TPH) said. “…Muted demand continues to make waves through early January, with inventories creeping up to surplus territory now” and forecast degree days “offering little support.”

January degree day totals were set to come in 16% below the five-year average even after increasing week/week, while early February forecasts were pointing to degree days coming in 4% shy of the five-year, according to the firm’s estimates as of early Friday.

This comes as supply volumes “have hung in around the 100.5 Bcf/d range — tracking slightly higher than our projected 1Q2023 levels in the 100 Bcf/d range,” the TPH analysts said.

Looking ahead to the next EIA inventory report, analysts are generally expecting another modest pull relative to recent years.

Early estimates submitted to Reuters for the week ending Jan. 20 ranged from withdrawals of 67 Bcf to 87 Bcf, with an average decrease of 78 Bcf. The projections compare with a decrease of 217 Bcf a year earlier and a five-year average decline of about 185 Bcf.

Cash Prices Clunk

Spot gas prices on Friday slumped a third straight day, hampered by benign weather and solid production.

Prices varied by region, but hubs posting losses peppered West Texas, the Rockies and California. Collectively, they drove down the national average.

El Paso Permian lost $1.595 day/day to average 35.0 cents, while elsewhere in the Lone Star State, Waha dropped $1.645 to 23.0 cents. West Texas prices have been under pressure amid excess supply, take away constraints and modest demand.

In the Rockies, Northwest Sumas lost 85.0 cents to $13.685. In California, meanwhile, SoCal Citygate fell $1.820 to $14.790 and SoCal Border Avg. dropped $1.725 to $14.285.

While falling Friday, prices in the West this winter have consistently exceeded national averages by a wide margin amid regional supply challenges and, unlike most other parts of the country in January, seasonally chilly weather.

NatGasWeather said that, to start the week ahead, a messy pattern of rain and snow would track across the Lower 48. Cold air would largely be confined to the West and Upper Midwest, with highs in the teens to low 40s.

“The eastern and southern U.S. will be mild to nice with highs of 40s to 70s and why national demand will remain light to moderate despite regionally stronger demand,” the firm said.

However, NatGasWeather added, cold air could spread into the East late in the coming week, making most of the United States colder than normal, with subzero low in northern markets.

Looking at the final days of January and the start of next month, the firm said, “cool to cold temperatures will cover the western, central and northern U.S. with highs of -0s to 40s, while mild to nice over the South and Southeast with highs of 50s to 70s.”