The expiring February Nymex natural gas futures contract was trading 3.5 cents lower at $2.876/MMBtu shortly before 9 a.m. ET Tuesday, with forecasters pointing to mixed signals in the overnight weather data.
The March contract, set to take over as the prompt month after Tuesday, was down 0.9 cents to $2.864 early Tuesday.
Bespoke Weather Services viewed the overnight model guidance as mixed heading into Tuesday’s session, with no major changes to the outlook. The forecaster, however, noted increased long-range cold risks, along with some moderation in the short- and medium-range.
The pattern driving a mild break for temperatures next week appears “short-lived,” and colder weather is likely to return by the second week of February, according to Bespoke.
“Our sentiment remains slightly bullish today as we head into what has been a string of strong contract expiries amidst a very strong cold shot that should keep physical prices bid,” Bespoke said. “Production has only ticked back higher over the past few weeks and still remains off highs, though imports were revised far higher to indicate the market is not quite as tight.
“Still, demand is shooting higher and with long-range cold risks we can see at least modest support for the front of the strip through the day, with $2.90-2.92 likely firm.”
Production has been gradually ticking back up after recent freeze-offs and “massive operational interruptions,” but this recovery could be hampered by the extreme cold arriving this week, according to Genscape Inc.
Genscape daily pipe production estimates as of Tuesday showed Lower 48 volumes climbing to around 85.8 Bcf/d, up nearly 2.3 Bcf/d from a recent low of 83.52 Bcf/d recorded Jan. 21.
“Since Jan. 21, the bulk of the recovery in volumes has come out of the Northeast, having increased by more than 1.5 Bcf/d with large upticks out of Ohio and Southwest Pennsylvania,” Genscape senior natural gas analyst Rick Margolin said. “Those areas are recovering from freeze-offs and restoration of partial service on the exploded Tetco 30-inch diameter mainline.
“Texas volumes have also posted notable increases (around 0.46 Bcf/d), followed by a roughly 0.24 Bcf/d increase out of the Midcontinent and 0.12 Bcf/d of gains out of the Gulf Coast region.”
The intense cold this week could put the market on track for a Top 5 largest-ever storage withdrawal once the Energy Information Administration (EIA) releases its data for the period ended Friday (Feb. 1), according to Energy Aspects.
“There remains a chance that the withdrawal could be even larger and break the record to become the second-largest withdrawal in the EIA weekly series,” the firm said. “If the predicted deep cold of some commercial forecasters does materialize in the Midwest…our balances would point to an even deeper withdrawal for the week ending Feb. 1, broaching 300 Bcf and taking our end-February carryout to 1.22 Tcf.”
On the supply side, Energy Aspects projected January production is on track to fall 1.1 Bcf/d month/month based on declines already observed from freeze-offs and pipeline issues in the Northeast.
“Importantly, this forecast assumes a normalizing level of production through the end of the month, though there is a risk the massive cold” this week “could buttress even more weakness in production and further tighten balances,” the firm said. With potential freeze-offs in Appalachia, “our forecast withdrawals could skew tighter than currently indicated,” especially for the week ended Feb. 1.
March crude oil was trading 46 cents higher at $52.45/bbl shortly before 9 a.m. ET Tuesday, while February RBOB gasoline was up fractionally to $1.3393/gal.
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