As models maintained expectations for a shift to colder U.S. temperatures to close out the month of January, natural gas futures reversed their recent losses in early trading Friday. After giving up 6.1 cents in the previous session, the February Nymex contract was up 9.1 cents to $2.757/MMBtu at around 8:40 a.m. ET.
Recent weather model runs had been volatile but as of early Friday continued to show colder temperatures arriving later this month, Bespoke Weather Services told clients in a note.
After “pushing back colder risks in yesterday’s midday runs, only to speed up both the timing and intensity in the overnight runs,” model trends left Bespoke’s latest forecast largely unchanged over the previous 24 hours.
“The theme, in our view, remains the same,” the firm said. “We finally see a colder pattern arrive here as we head into late month” focused on central and western portions of the Lower 48, “but with some cold bleeding eastward” under a North Atlantic Oscillation block in the Atlantic. “Because the strongest cold looks to focus back from the Plains to the Pacific Northwest, it’s not an extreme pattern to the cold side in terms of national demand, but it’s easily the coldest we have seen all season long.”
Analysts at EBW Analytics Group described the previous 24 hours of forecast data as both “simple” and “frustrating,” attributing the drop in prices Thursday to “significant losses” in the midday model runs.
“This morning, however, the European and American models have rebounded,” the EBW analysts said. The models have also “converged strongly” in terms of both the timing and the total amount of expected heating demand.
The firm said it sees potential for “significant drama” in the market as traders return from the Martin Luther King Jr. Day holiday next week.
“By then, day nine — when the pattern shift is expected to begin — will have become day five, providing considerably more confidence” in the temperature outlook for late January, according to EBW. “While a warmer shift is still possible, if this morning’s forecast holds, natural gas prices could rise sharply.”
Meanwhile, the U.S. Energy Information Administration (EIA) on Thursday reported a withdrawal of 134 Bcf from natural gas storage for the week ended Jan. 8, eclipsing both the year-earlier pull and the midpoint of analysts’ estimates. EIA recorded a 91 Bcf withdrawal for the comparable year-ago period, while the five-year average withdrawal is 161 Bcf, according to the agency.
Based on historical degree day correlations the latest EIA report indicates the market was about 3 Bcf/d undersupplied for the period, according to analysts at Tudor, Pickering, Holt & Co. (TPH), who pointed to demand coming back online after the holidays.
“Further driving the undersupply is an increase in gas-fired power generation” as wind generation dropped to below normal levels last week, the TPH analysts said. “Looking to the current week, it seems wind power generation has risen back to normal levels, with gas reducing slightly on Wednesday. With this in mind, our preliminary forecast for next week is a 175 Bcf draw.”
February crude oil futures were off 55 cents to $53.02/bbl at around 8:40 a.m. ET, while February RBOB gasoline was off fractionally to $1.5492/gal.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |