The power struggle between natural gas market bears and bulls continued Wednesday as futures prices soared as much as 17 cents overnight on a chillier long-range outlook only to plunge into the red as the latest data added a few days of milder temperatures. The Nymex January gas futures contract eventually recovered enough to settle 1.2 cents higher at $4.469 Wednesday, while February rose 2.5 cents to $4.33 and March gained a more substantial 6.9 cents to hit $4.006.

Spot gas prices, meanwhile, were mostly lower as demand was expected to start declining even as cold weather lingered across some demand centers. The NGI Spot Gas National Avg. dropped 25 cents to $4.775.

On the futures front, trading action remained volatile Wednesday as weather outlooks reflected a chillier pattern for late December and natural gas storage remained anemic with weeks to go before the peak of the winter season. The prompt month opened the session more than a nickel higher and reached an intraday high of $4.63 before hitting technical resistance and falling for much of the late morning/afternoon. A late-session bounce sent the prompt month back into positive territory into the close.

With overnight temperatures reaching zero in some locales this week, traders remained focused on weather data that showed colder weather for the latter part of December. Specifically, European model guidance trended “convincingly colder” in the long range with a more active southern storm track that would keep gas-weighted degree days (GWDD) closer to seasonal averages, according to Bespoke Weather Services. The firm indicated it would watch for slight GWDD losses later as a stormy pattern and gradual transition back to a western ridge after Dec. 20 “should limit just how much more bearish we trend.”

Still, a break in the frigid conditions remained on tap as mild high pressure was forecast to gain in coverage and strength across the central and northern United States early next week, then shift over the northern and eastern United States, easing national demand to lighter levels as temperatures warm above normal, NatGasWeather said. Weather systems, however, were expected to track across the western United States into the southern Plains and then across the South and Southeast, where colder trends have occurred in recent data.

But, “this isn’t due to frigid Canadian air pouring across the border” and there was “no change bigger picture with weather patterns bullish through early next week, then at least modestly bearish after,” the firm said.

Regardless, weather was expected to remain front and center for a market grappling with historically low storage inventories. Lower 48 gas stocks sat at 3,054 Bcf as of Nov. 23, 644 Bcf below last year and 720 Bcf below the five-year average.

This week, the Energy Information Administration (EIA) is scheduled to release its weekly storage report at 10:30 a.m. ET on Friday, due to the closing of federal government offices and financial markets on Wednesday’s Day of Mourning in honor of former President George H.W. Bush, who died Nov. 30.

Early market estimates as of Wednesday clustered around a withdrawal in the low to mid-60s Bcf. A Bloomberg poll of 10 market participants showed a withdrawal range of 51 Bcf to 77 Bcf, with a median draw of 64 Bcf. Kyle Cooper of IAF Advisors projected a pull of 62 Bcf, while EBW Analytics expected a 61 Bcf draw.

Last year, EIA recorded a 3 Bcf withdrawal for the period, and the five-year average is a withdrawal of 58 Bcf.

With a widening storage deficit expected after this week’s report is accounted for, the market appears to be pricing in lower end-of-season storage numbers as reflected in stronger prices for next year and the winter 2019-2020 strip, according to Morningstar Commodities Research. Indeed, the calendar year 2019 strip has increased more than 30 cents since the beginning of November and sat Wednesday at $3.25, while the winter 2019−2020 strip has risen just over a dime during that time and sat Wednesday at $3.04.

“That forward curve shift reflects storage becoming a longer-term concern during the past month and is now being priced into next year and next winter,” Morningstar power and gas associate Daniel Grunwald said.

To be sure, steady growth in demand from growing liquefied natural gas exports and the power sector has created additional outlets for increased supply. This new supply/demand balance has placed additional stress on natural gas inventories, pushing storage lower as the withdrawal season started, according to Morningstar.

“Stark differences in the short- and long-term forecasts mean the back end of the winter strip will keep whipsawing around in response to changes in the daily short-term forecast for some time,” Grunwald said.

Another factor to consider in the coming months will be the impact any significant cold could have on production. Cold winter weather has frozen off dry gas production in six of the last eight winters, peaking at 1.54 Bcf/d in January 2018, according to EBW Analytics. The firm recently increased its freeze-off estimates for January and February, crimping supply by another 75 Bcf. Freeze-offs may be larger this year because aggregate dry gas production is higher than in years past and a larger portion of production comes from liquids wells, which have higher freezing points, the firm said.

“Freeze-offs are always an important market consideration, but will be especially so this year given the narrow market storage buffer and the growing role of production growth in meeting winter demand. This increases the importance of January and February weather in Nymex futures price outcomes,” EBW CEO Andy Weissman said.

Spot Gas Slides as Demand Wanes

Spot gas prices were down across most of the country as cold weather that had moved into Texas and the South was expected to ease in the coming days. While it was still expected to remain cold over large stretches of the country through Thursday, demand was set to taper back considerably.

In Appalachia, Genscape Inc. projected demand to plunge back into the 14 Bcf/d range for Thursday and Friday after reaching an expected weekly high of 17.15 Bcf on Wednesday.

For the greater EIA East region, the firm’s demand sample for Wednesday came in at 33.7 Bcf/d, a 10.5 Bcf/d gain since Sunday.

As expected, Northeast residential/commercial demand comprises the bulk of load, but power burns remain a strong contributor in the Southeast, where electric heating is prevalent, Genscape said.

“While this hasn’t been the peak of this winter’s demand, which came in at 35.7 Bcf/d on Nov. 28, this demand should be sustained with the cold front expected to last until mid-December,” Genscape natural gas analysts Josh Garcia and Dominic Eggerman said in a note to clients.

As for prices, Transco Zone 6 NY tumbled more than $1 to average just under $5, while Algonquin Citygate in New England dropped more than $3.50 to average $6.96.

In Appalachia, Dominion South plunged 18 cents to $4.285, while most other losses were capped at a dime.

Decreases in the Southeast were similar, with Tenn Zone 1 100L sliding just 6.5 cents to $4.455 and most other pricing hubs falling less than a dime.

Losses were steeper in the Rockies and California, where a mix of cold and mild temperatures was expected through Thursday, highlighted by weather systems with rain and snow, according to NatGasWeather. A second milder system was expected to come out of California/Southwest and then move across Texas and the southern United States with rain and snow this weekend and into early next week combining to keep national demand strong.

Given the fluctuating weather, demand in the Rockies and California was expected to slide for the rest of the week, most notably in California. As such, Kern River dropped more than 50 cents to $6.335, and SoCal Citygate plunged more than $1 to $10.03.