After hinting at some weakness earlier in the week, natural gas futures moved decidedly lower on Tuesday as traders realized they may have given Punxsutawney Phil a little too much credit. With the brutal cold circulating through the Lower 48 seen fading before month’s end and a more seasonal pattern in store thereafter, the March Nymex gas futures contract settled 4.7 cents lower at $2.835. April fell 3.9 cents to $2.823.

Evening Markets

Spot gas prices were mixed as the Arctic air bringing snow and freezing rain to the central United States was to begin penetrating farther south and east. NGI’s Spot Gas National Avg. slid 19.0 cents to $3.795.

Residents throughout the north-central United States may want to queue up the next Netflix series and light the fire. Bitter Arctic air was set to remain entrenched across the region for the next week, according to the National Weather Service (NWS). The forecaster said wind chills as low as minus 50 degrees could be found across far northern portions of the Northern Plains and Upper Midwest. High temperatures are expected to struggle to make it above zero from Montana to Minnesota through the next few days, with lows in the negative teens and 20s.

An area of low pressure was forecast to develop over the Ohio Valley on Tuesday and move toward the New England coastline. Up to six inches of snow could be found to the north of the low and affect regions across the Interior Northeast and New England, according to NWS.

By midweek, a “potentially significant” ice storm was possible from the Southern Plains to the mid-Mississippi and Ohio valleys, the forecaster said. Freezing rain should develop across northern Arkansas and quickly spread east-northeast to the Ohio Valley, and widespread ice accretion was likely across the region by later Thursday.

Beyond next week, though, the weather models have struggled to determine whether the frigid air would remain in place. The Global Forecast System model was milder overnight for the Feb. 21-24 period, only to flip back a bit colder in the midday run. It gained back 8-9 of the 14 heating degree days it lost, according to NatGasWeather.

“Bulls have to be frustrated recent bullish weather trends get little to no reaction higher, while bearish trends induce rapid selling,” the forecaster said.

Bespoke Weather Services said the more bearish undertone in the market is likely because the impending rush of polar air already has been priced into the market, as it’s been showing up in the forecast for more than a week. What’s new is the moderation toward the end of the month.

“This market’s mentality has been one which is eager to sell this rally, so the trends give the bears some ammunition to work with today,” Bespoke said.

Though the late-February outlook is not “all out warm,” it appears the Pacific may become hostile toward any additional cold shots, according to the forecaster. This leaves the lingering North Atlantic Oscillation as the remaining bullish teleconnection.

“Given what we see in the evolution of projected tropical forcing, this makes sense, and should at least get the pattern back to variable/near normal, though we urge some caution for now, as these models have been shifting very wildly over the last week and a half,” Bespoke said.

Even with some moderation in the chilly forecast in the last few days of the month, the sustained period of heightened demand is expected to take a toll on what have been, until now, plump storage inventories.

A Goldman Sachs Commodities Research analyst team, led by Samantha Dart, said it sees stocks at the end of October 247 Bcf lower to 3,436 Bcf. This is based on Goldmans’ gas summer price forecast of $3.25. The team expects stocks to fall 95 Bcf to 2,961 Bcf under a scenario based on current Nymex futures prices.

“In the absence of further changes to weather or other fundamentals, this would imply the need for U.S. gas prices to move another 25 cents above our $3.25 summer 2021 forecast,” the Goldman team said.

Alternatively, the analysts said a sustained $3.25 gas price from now through the 2021/22 winter could take the 2021/22 winter storage to more comfortable levels, with end-of-March, in particular, closer to 1,600 Bcf.

The Goldman analysts refrained from bumping up the price forecast, citing the ongoing uncertainty related to the weather and production. On the supply side, the firm said oil balances are tightening — and oil prices rallying — at a faster-than-expected pace. “If sustained, this might lead to higher-than-expected U.S. oil and associated gas production, which would, in turn, loosen U.S. gas balances versus our current expectations.”

In the latest Short-term Energy Outlook released Tuesday, the Energy Information Administration (EIA) pegged storage gas inventories at the end of March sitting at 1.8 Tcf, which is roughly in line with the five-year average. The agency also projected that Henry Hub spot prices would average $2.95 in 2021, which is up from the 2020 average of $2.03. Continued growth in liquefied natural gas exports and in domestic natural gas consumption outside of the electric power sector, as well as relatively flat production, are seen contributing to Henry Hub spot prices rising to an average of $3.27 in 2022.

Meanwhile, the agency said it expects oil production to reach 10.9 million b/d in June as West Texas Intermediate crude prices are seen lingering around $50/bbl. The agency estimates that U.S. crude oil production would average 11.0 million b/d in 2021, which is down from 11.3 million b/d in 2020 and 12.2 million b/d in 2019, and then rise to 11.5 million b/d in 2022.

Unrelenting Cold

Spot gas prices continued to peel back from recent highs across much of the country Tuesday. Some pricing locations continued to strengthen, however, with the coming two weeks tapped to be the coldest the United States has experienced in years.

In the Upper Midwest, Chicago Citygate next-day gas climbed 10.0 cents day/day to $3.275.

Chicago began February with daytime temperatures hanging around 33 degrees before the mercury steadily dropped to only 5 degrees on Sunday (Feb. 7). A brief “warm-up,” if it can be called that, is set for the remainder of the week, with highs topping out at 20 by Friday before sliding back to the single-digits by Sunday.

In the Midcontinent, cash prices were mostly stronger day/day. OGT was up 45.5 cents to $4.155.

Prices across most of Texas shifted slightly in either direction, while Waha picked up 12.0 cents to average $3.255. This gain is particularly notable because the Permian Basin pricing hub, known for its frequent dips below zero over the past couple of years, stood Wednesday at a 6.0-cent premium over benchmark Henry Hub.

“What a difference a year makes,” said RBN Energy LLC analyst Jason Ferguson.

The analyst was referencing the two major natural gas pipelines that have come online in the basin in the past few months — the Kinder Morgan Inc. (KMI) Permian Highway Pipeline and the Agua Blanca expansion built by WhiteWater Midstream and MPLX LP. KMI’s Gulf Coast Express system entered service in 2019, but sub-zero pricing remained prevalent after the 2 Bcf/d conduit began operations.

Prices in the Rockies were generally flat on Wednesday even as Westcoast Transmission was undergoing an unplanned maintenance that limited flows South into the Pacific Northwest.

Wood Mackenzie said Westcoast’s Station 2 experienced an unplanned electrical failure that reduced flow capacity through the “Station 4B South” point from 1,900 MMcf/d to between 1,670 and 1,730 MMcf/d beginning on Sunday (Feb. 7). The pipeline also posted that 4B South operating capacity could be limited to as low as 1,520-1600 MMcf/d in upcoming days, but so far the limitations have not been this severe.

“The reduction so far of 170-230 MMcf/d in Westcoast’s flow capacity has led to a corresponding drop downstream at the Sumas U.S. border point,” Wood Mackenzie analyst Joseph Bernardi said. “There, imports onto Northwest Pipeline have dropped by 150-350 MMcf/d versus their previous 30-day average.”

Westcoast expects the outage to last “for several days,” according to a notice on its website. Flow capacity increased day/day for Tuesday’s gas day, though, to 1,732 MMcf/d from 1,670 MMcf/d, Bernardi said.California prices also barely budged, while on the East Coast, the losses began to stack up. Tenn Zone 6 200L next-day gas plunged $1.615 day/day to average $10.115. Transco Zone 6 non-NY was down 37.5 cents to $3.360.