• Nymex natural gas futures in freefall, flirting with $2.50
  • Weather models turn sharply warmer
  • Cash slides amid light Easter weekend demand

A notable drop in weather-driven demand expectations over the Easter holiday weekend helped send natural gas futures tumbling early Monday. The May Nymex contract was down about 15.0 cents at midday, trading just shy of $2.500/MMBtu.

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Over the holiday weekend, both the European and American weather models showed large losses in degree days, according to EBW Analytics Group analysts. They estimated a decline of 18 Bcf in total projected natural gas demand resulting from the forecast changes.

The latest forecast from Bespoke Weather Services showed the current week sitting at a “near-record” low for national gas-weighted degree days.

“There is support for a cooler trough to move into the eastern U.S. as we get toward the middle of the month, though this is only expected to bring demand back up toward near-normal levels at this time, keeping April on pace to be yet another warmer-than-normal month rather easily,” Bespoke said. 

“While there can be some variability at times, our view is that the general warmer-than-normal regime will continue to roll along, which is bearish for a few more weeks” before cooling degree days “begin to take over more as we get toward the middle part of May.”

Alongside weather, other fundamental factors including production gains and weak power burns were creating a “perfect storm of bearishness” for natural gas early Monday, according to Bespoke.

“The bigger story remains the weakness in power burns,” the firm said. “It was a holiday weekend, of course, but these burns, even when adjusting for weather, are still very weak, with lower prices the last few weeks doing very little to bring in more demand, at least so far.”

Meanwhile, going back to last week’s U.S. Energy Information Administration (EIA) storage report, the 14 Bcf injection reported by the agency came in around 0.4 Bcf/d looser than the five-year average when compared to degree days and normal seasonality, according to Wood Mackenzie analyst Eric Fell.

“Last week is almost back to neutral after four very loose stats in a row,” Fell said in a note to clients.

Broken down by region, the South Central added a net 15 Bcf into storage, including 11 Bcf into salt facilities and 4 Bcf into nonsalts, according to EIA. Pacific stocks rose by 1 Bcf, while the East and Mountain regions each recorded no change. The Midwest continued to withdraw, pulling 4 Bcf out of inventories.

Total working gas in storage as of March 26 stood at 1,764 Bcf, which is 225 Bcf below year-ago levels and 36 Bcf below the five-year average, EIA said.

Looking ahead to this week’s EIA report, NGI issued a preliminary estimate for a 23 Bcf build for the week ended April 2. Last year, EIA recorded a 30 Bcf injection for the similar week, and the five-year average is an injection of 8 Bcf.

The lone bright spot for the U.S. gas market remains liquefied natural gas (LNG) demand. NGI data showed feed gas volumes holding near 11.7 Bcf on Monday, near levels seen a week ago.

Given the LNG strength, EBW said the picture for the summer, fall and winter month contracts is turning increasingly bullish. The firm noted other positive catalysts for the long-term outlook.

It said the start of the injection season would create a new source of largely price-inelastic demand, while higher prices and continued large storage deficits in Europe suggest that U.S. LNG exports could remain strong into the fall. In addition, a rebound in demand for natural gas by petrochemical companies in the Gulf that were damaged by Storm Uri also bodes well for the gas market, as does the potential for very hot weather in the US this summer, which would increase power sector demand.

“These bullish catalysts reduce the downside risk for the May contract. Increases further down the curve could pull up the front end,” EBW said.

Shades Of Red

A frosty late-season cold shot sweeping across the Midwest and Northeast over the Easter weekend did little to boost demand.

NatGasWeather said heavy showers and thunderstorms over the East/Southeast were forecast ahead of the cold front, along with snow showers behind it over the Great Lakes and Northeast. However, high pressure was expected to build over the interior United States and expand across the East early in the week. This would result in widespread high temperatures ranging from the 60s to 80s for light demand.

“There will still be areas of showers over the western and southern United States” in the week ahead, “just to the mild side,” according to the forecaster. A seasonal pattern is expected April 10-15 as weather systems track across the country.

[Want to know how much natural gas is being imported into Mexico? Check out NGI’s Mexico Natural Gas Flow Tracker.]

With the late-season chill arriving over a long holiday weekend and temperatures set to rise quickly afterward, spot gas prices fell hard in the Northeast.

Algonquin Citygate prices for gas delivered through Monday plunged 28.5 cents to $2.250. Transco Zone 6 non-NY tumbled 33.0 cents to $2.100.

In the Southeast, Transco Zone 5 cash fell 13.5 cents to $2.525, while Henry Hub slipped only 1.5 cents to $2.470.Prices across the Midwest also moved lower by the double digits, while losses were less steep in most of Texas. Houston Ship Channel prices for the three-day gas delivery dropped 6.0 cents to $2.390.