Natural gas traders are relying more heavily on upcoming weather patterns to determine short-term price direction rather than focusing on storage or demand patterns. The most important demand pattern natural gas futures traders were concerned about Tuesday was the supply of contracts, and the buyers prevailed. January natural gas futures rose 10.6 cents to $7.141 and February added 10.2 cents to $7.278.
“If the weather stays cool, supplies won’t be enough and we will work off the surplus pretty quick, for a lot of gas is being used for the temperatures we are seeing,” said Kyle Cooper of IAF Advisors in Houston. He added that the draws that were being seen were quite high for the observed temperatures. “Temperatures aren’t all that cold but, we are drawing a decent amount of gas.”
For the week ended Dec. 7 analysts had been expecting a withdrawal of about 130 Bcf. A Bloomberg survey revealed an estimated 130 Bcf withdrawal, and a Reuters poll predicted an estimated 131 Bcf withdrawal. The actual pull figure of 146 Bcf surprised analysts, and weather bulls can take heart because there was no missing component of increased industrial demand or other factors. “My number came in at 147 Bcf, but it’s all about residential demand,” said Cooper. “Temperatures get cold and there is lots of demand. Temperatures get warm and there is less demand. It’s as simple as that,” he said.
He pointed out that residential heating demand was all about heating volume. “Houses have gotten bigger square footage-wise and volumetrically, and that requires more heat. That’s what I think is the essence of the analysis,” he said.
Currently the National Weather Service (NWS) long-term forecast for the January-March period shows above-normal temperatures for the southern three-quarters of the country. South of a line extending from New York to Wyoming to Southern California is forecast to be above normal. The Pacific Northwest east to Minnesota is expected to be normal, according to the NWS forecast.
“If the warm forecast for the end of winter doesn’t come to fruition, supplies could end up a lot lower than people think; 1,564 Bcf was the low storage reading from last season, and if we continue to have weather, we could end up 200 Bcf below that figure,” said Cooper.
Short-term traders were somewhat fatalistic about the day’s advance. “Because it’s December the market is going to have trouble falling,” said a New York floor trader. He added that once January futures broke above $7.130, buying momentum carried it higher, but “if the rally had any heft to it, it would have traded into the $7.20s and tested $7.290. This rally is going to need some colder weather to keep it going.”
That weather may be forthcoming. Meteorologist John Dee is looking for cooler temperatures across the U.S. “As we head through the weekend and into the first half of next week it looks like temperatures across much of the U.S. will again start to head into the below-average category,” he said in a Tuesday morning note to clients.
He noted that the temperature readings may not reach the “way below average” level but cold air and storm activity would prompt temperature readings several degrees below average across most of the country.
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