Natural gas futures soared midweek after one of the major weather models staged the largest reversal this winter, resulting in a huge jump in projected demand for the next two weeks. The February Nymex gas futures contract settled Wednesday at $4.277/MMBtu, up 22.4 cents from Tuesday’s close. March rocketed up 14.2 cents to $4.036.

At A Glance:

  • February outlook trends colder
  • Market seen dramatically tightening
  • Northeast cash crashes despite ongoing cold

Next-day gas prices also marched higher as a series of frigid blasts is forecast to sweep across the country. However, with a dramatic sell-off in the Northeast, NGI’s Spot Gas National Avg. plunged 28.0 cents to $6.255.

With weeks of sustained cold already amassed, natural gas traders have been closely monitoring the February forecasts. Weather models, though, have provided little certainty, with erratic swings in projected cold among the various data sets.

The latest model runs produced more of the same, this time with the overnight European model adding nearly 20 gas-weighted degree days to the outlook. Although the American Global Forecast System remains colder, the about-face from the European model emboldened gas bulls in the final days of the February Nymex contract. Options expired on Wednesday, while contract expiration is set for Thursday.

“Heading into February’s contract expiration period, natural gas prices have exploded higher,” said Bespoke Weather Services. “This move effectively prices in the colder change in modeling, but the question now is whether or not there will be additional ‘panic buying’ into expiration, given what happened last February.”

Potential Winter Storm Jitters?

Indeed, the approaching one-year anniversary of Winter Storm Uri may be causing some jitters in the market. However, Bespoke said confidence is now lower in the February outlook. It continues to see signals from tropical forcing that do not support this level of cold beyond the first few days of the month.

“So far, however, model consensus says that is incorrect,” Bespoke said. “So, either we placed too much emphasis on the orientation of tropical forcing, or models will ultimately correct back in the warmer direction over the next few days.”

NatGasWeather said the afternoon run of the European data set held onto the demand it gained overnight. With a loss of heating degree days in the midday Global Forecast System (GFS), the European model now sits quite a bit chillier than the American model.

“Although we caution, as we’ve been mentioning, the weather data has been inconsistent going back to last week, so we must be prepared for decent-sized warmer or colder trends in the weather models in the days ahead,” the forecaster said.

Other Bullish Indicators

EBW Analytics Group noted that the expiring front-month gas contract has shown a tendency to rise into options expiration and final settlement. Over the past 14 months, the front month has increased in 10 of 14 instances over the final two trading days, logging an average gain of 17.9 cents before rolling off the board.

The trend becomes even more pronounced on final settlement day, according to EBW, with the prompt month rising in 12 of the past 14 months for an average gain of 12.1 cents. Further, over the last five months, the front month has risen at least 30 cents on four occasions and more than 45 cents three times.

“While natural gas is likely to be extremely volatile, the weather-driven boost for Week 3 – if sustained – may be the catalyst needed to achieve significant gains” into the February final settlement,” EBW senior analyst Eli Rubin said.

Even without a significant chill lingering into next month, production – already well off earlier highs because of freeze-offs – could slide further this week if new shut-ins occur. EBW said pipeline flow monitors have pointed to declines in recent days, while the polar air set to arrive in Texas later this week sets the stage for further curbs to output in the Permian Basin.

Meanwhile, storage withdrawals have mounted in recent weeks, with a further substantial drawdown in inventories ahead. EBW noted that the steep pulls are leading to a market that is 10.0 Bcf/d tighter than the five-year average over the next four government storage reports.

The Energy Information Administration (EIA) is scheduled to release the next report at 10:30 a.m. ET on Thursday, with a wide range of withdrawal estimates preceding it. A Bloomberg survey of eight analysts produced a range of withdrawal projections from 198 Bcf to 225 Bcf, with a median pull of 215 Bcf. The Wall Street Journal poll results averaged 215 Bcf as well, though the range of estimates was tighter. Reuters polled 17 analysts, whose estimates were as steep as 230 Bcf with a median draw of 216 Bcf. NGI modeled a 198 Bcf pull.

Last year, the EIA recorded a 137 Bcf withdrawal from storage in the similar week, while the five-year average draw is 161 Bcf.

Inventories as of Jan. 14 stood at 2,180 Bcf, which is 226 below last year and 33 Bcf above the five-year average, according to EIA.

Easy Come, Easy Go Price Gains

After rallying to nearly $30.00 in recent days, spot gas prices across the Northeast took a step lower on Wednesday despite the continuation of bitter cold in the region.

The National Weather Service (NWS) said overnight lows were forecast to dip below zero and into the single digits for most locations throughout the Northeast, with teens expected farther south into the Tennessee Valley and southern Virginia. Meanwhile, the next shot of arctic air is lined up and expected to drop out of south-central Canada on Thursday. This should result in below-average temperatures throughout the Upper Midwest/Great Lakes on Friday.

A potent upper-level disturbance was seen moving across the region, rounding the base of a trough over the eastern United States and spawning a developing coastal storm east of the Carolinas by Friday night, according to NWS. Light snow may occur across the central Appalachians and Mid-Atlantic by Friday afternoon, leading to minor accumulations.

“The majority of the impacts associated with this upcoming winter storm will likely occur after Friday night,” NWS said.

Heightened heating needs notwithstanding, spot gas prices across the Northeast crumbled. Iroquois, Waddington next-day gas plummeted $9.360 day/day to average $13.290 for Thursday’s delivery. Transco Zone 6 non-NY was down $3.765 to $9.780.

In Appalachia, Texas Eastern M-3, Delivery was down similarly, but the rest of the region produced a mix of gains and losses in midweek trading.

California prices were stronger. The SoCal Border Avg. jumped 33.0 cents to $4.915.

As for the rest of the country, spot gas prices continued to climb. Prices rose mostly upward of 15.0 cents, with Henry Hub picking up 21.0 cents to average $4.370 and Waha in West Texas edging up 20.5 cents to $4.035.

Wood Mackenzie noted that Permian gas conduit Double E pipeline reported first deliveries onto Gulf Coast Express (GCX) on Tuesday (Jan. 25), with about 29 MMcf. The interconnect has an operational capacity of 485 MMcf/d and is one of three locations that deliver to other pipelines on Double E, along with the Trans-Pecos and Permian Highway pipelines.

The timely nominations for Wednesday (Jan. 26) “schedule another 29 MMcf to flow,” according to Wood Mackenzie analyst Quinn Schulz. “Since day/day flows elsewhere on Double E remained roughly the same on Jan. 25, the new deliveries onto GCX seemed to have come from the San Mateo Black River plant, as receipts from it rose in proportion to those deliveries.”