Amid continued signs of recovery in natural gas production following last week’s intense cold in Texas and the Midcontinent, futures were trading several cents lower early Tuesday. The March Nymex contract was down 5.6 cents to $2.897/MMBtu at around 8:50 a.m. ET.
The overnight weather data offered up a mixed bag of changes to the outlook, according to NatGasWeather. The American model added heating demand on colder trends for early March, while the European model trended warmer for the first few days of March but colder for March 5-8 to lower its heating demand expectations day/day.
Overall, both models “just aren’t quite cold enough the next 15 days, even with bouts of stronger demand late this week and again around March 2-3,” NatGasWeather said, noting that “mild breaks in between and a rather mild/warm setup for March 5-9 makes the pattern bearish overall.”
Recent selling in the futures market has brought prices back to where they were prior to last week’s Arctic blast. Still, the full impact of the recent weather event “has yet to be fully accounted for and is still expected to flip” storage from a surplus to a deficit versus five-year norms, “highlighting the background state has become increasingly bullish,” NatGasWeather said.
“However, bulls just can’t get any traction this winter as all rallies immediately get sold,” the firm said. “We expect how fast production recovers could be more important than weather.”
As of early Tuesday, the latest estimates from Wood Mackenzie showed Lower 48 production recovering but still well shy of levels observed prior to last week’s deep freeze.
Cautioning that the firm’s estimates remain “highly subject to revisions,” Wood Mackenzie analyst Joe Bernardi said recent data showed Lower 48 output “back up above 80 Bcf/d, which is very roughly around 90% of the overall January average.
“Recoveries are varying regionally, with areas like the Permian Basin still in the 77-87% recovered range, compared with Texas overall, which has been in the 85-91% range over the last few days.”
Noting “only slight” changes in the weather outlook overnight, analysts at EBW Analytics Group attributed the selling early Tuesday in part to the continued recovery in production coming out of the South Central region.
“The key question today is whether the March contract can hold support at $2.87,” the EBW analysts said. “With a gigantic draw likely Thursday, there’s a good chance support will hold. If midday model runs” lower heating demand expectations, however, “support could crack — setting up a test of support 10 cents lower.”
April crude oil futures were up 14 cents to $61.70/bbl at around 8:50 a.m. ET, while March RBOB gasoline was up fractionally to $1.8431/gal.
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