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Natural Gas Futures Snap Six-Day Streak of Gains After Anemic Storage Print; Spot Prices Advance
Natural gas futures fell for the first time in seven sessions on Thursday after a federal inventory report showed robust supplies and modest demand through the end of February. However, losses were modest, and analysts said another rally may soon commence amid signs of falling production, a bump in LNG demand and anticipated rounds of cold March weather.
At A Glance:
- Heating demand lingers
- Production levels hold steady
- Freeport recovery proves uneven
The April Nymex gas futures contract on Thursday slipped 4.6 cents day/day and settled at $2.765/MMBtu. May shed 4.4 cents to $2.899.
NGI’s Spot Gas National Avg. rose 8.0 cents to $3.845.
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The U.S. Energy Information Administration (EIA) on Thursday posted a withdrawal of 81 Bcf natural gas from storage for the week ended Feb. 24.
Prior to the report, NGI modeled a 76 Bcf pull, and major surveys also found expectations for a draw in the 70s Bcf. Still, the result proved weak relative to the 137 Bcf withdrawal EIA posted for the year-earlier period and the five-year average pull of 134 Bcf. Thursday’s print marked another in a long string of bearish storage results in 2023 amid seasonally mild weather and strong production.
Output hit a record above 102 Bcf/d late in 2022 and held near that level through the first two months of this year. This sent prices down near the $2 level at one point last month and prompt month futures prices remain less than half of where they were in early December.
The latest withdrawal left inventories at 2,114 Bcf, well above the year-earlier level of 1,663 Bcf and the five-year average of 1,772 Bcf.
Analysts at Schork Report said the “meager” result relative to historic norms reflected a “dearth of heating demand throughout key market areas in the Midwest and East.”
Looking ahead to the next EIA print, analysts are expecting a result in the ballpark of the latest result. This would leave storage at a substantial surplus to the five-year average.
Early estimates submitted to Reuters for the week ending March 3 ranged from withdrawals of 63 Bcf to 83 Bcf, with an average decrease of 75 Bcf. That compares with an actual decrease of 126 Bcf during the similar week last year and a five-year average decline of 101 Bcf.
However, beyond this week, and the next EIA report, weather and production levels may favor bulls again.
Bullish March Outlook?
National Weather Service (NWS) data showed below-average temperatures canvassing most of the Lower 48 from Wednesday (March 8) to March 15, driving seasonally strong heating demand. Northern markets could see stretches of overnight lows around zero degrees, and southern markets could endure lows in the 40s.
Additionally, production dropped below 98 Bcf/d early this week and held around 99 Bcf/d Thursday, according to Bloomberg estimates. That followed a series of recent earnings calls during which gas-heavy exploration and production firms said they would likely scale back drilling this year.
What’s more, as EBW Analytics noted, feed gas nominations at export facilities reached a nine-month high Thursday at 13.5 Bcf/d, with Freeport LNG approaching 1.3 Bcf/d of demand.
The Freeport liquefied natural gas export plant in Texas, forced offline in June following a fire, began ramping back up in February and is working to restore full operations by the spring. At full capacity, it would draw about 2.38 Bcf/d from domestic supplies.
North America LLC’s Steve Blair, senior account executive, told NGI that coal-to-gas switching also has been elevated in recent weeks. “Production levels going lower seem to be the final piece of the rally puzzle,” he said.
That noted, the market is on the cusp of the spring shoulder season, when mild temperatures tend to curb both heating and cooling demand, easing any upward pressure ahead of the summer months. Blair said prices could rise to the $3 level this month, but he’s skeptical the front month can push much past that threshold.
“It’s already the beginning of March and most of the winter days are quickly getting behind us even if we do get some winter weather before spring arrives,” Blair said.
East Daley Analytics’ Robert Wilson, vice president of analytics, said Thursday on the online energy platform Enelyst that, while production may ease further from record levels, momentum entering the new year was so strong that pullbacks will take time, and output for the year may still be enough to leave the domestic market oversupplied.
“We have had a bearish view on natural gas prices for some time,” Wilson said. “Our unbalanced forecast…is predicated on 101 Bcf/d of average dry gas supply in ’23.”
The firm’s balanced view of supply/demand calls for average output around 99 Bcf/d, with reductions likely in the gas-centric basins of the Haynesville and Marcellus.
While the latter scenario is possible, “we still think there is a problem of oversupply,” Wilson said, “even after the price correction we’ve been calling for.”
Spot Prices Steady
Next-day cash prices pushed further ahead on Thursday – after strong gains a day earlier – with hubs in the central United States leading the latest move higher.
NWS forecasts pointed to mixed weather-driven demand through this weekend and the start of next week. However, its data showed a wintry weather system pushing from the West into the central United States late in the current week, delivering chilly rains and snow from the Midwest to the Great Lakes and eventually to the Northeast, driving bouts of solid regional demand.
This could include cool conditions as far south as Texas. It could precede a more far-reaching blast of freezing air expected to arrive by the middle of next week.
Against that backdrop, Chicago Citygate gained 9.0 cents day/day to average $2.615, while Michigan Consolidated advanced 13.0 cents to $2.710 and OGT rose 19.0 cents to $2.390.
In Texas, El Paso Permian forged ahead 14.5 cents to $2.415 and Waha gained 11.5 cents to $2.360.
AccuWeather meteorologists on Thursday warned that the storm system was pushing through the central United States and to the East late this week. The storm, they said, could bring heavy snow to Chicago and Milwaukee, a moderate amount of snow to Detroit and Boston, and a mix of snow and rain to New York City.
“The storm system will be a complex one where one center of low pressure will track northeastward into the Midwest and weaken from Thursday night to Friday before a secondary low pressure area forms along the mid-Atlantic coast and heads northeastward over the ocean on Friday,” AccuWeather meteorologist Bernie Rayno said.
By the middle of next week, AccuWeather’s outlook showed a colder flow of air would settle over much of the country’s eastern half. This could endure into the second half of March and, if it does, set the stage for a chilly start to April, the firm said.
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