• Expectations eased for a widespread winter freeze 
  • LNG volumes were solid, but lower than January highs
  • Spot prices sputtered amid mild temperatures

Natural gas futures plunged on Tuesday after forecasts over the holiday weekend trended warmer for late January and early next month, diminishing prior expectations for a widespread winter freeze that would fuel robust heating demand.

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The February Nymex gas futures contract settled at $2.546/MMBtu, down 19.1 cents day/day. March fell 16.7 cents to $2.529.

Spot gas prices were also under heavy pressure. NGI’s Spot Gas National Avg. dropped 15.5 cents to $2.690.

Following the shift in forecasts, EBW Analytics Group estimated a cumulative decline of 70.2 Bcf of demand compared to projections prior to the holiday weekend, when models had “called for a sustained cold air connection to develop” before the end of January.

“With only three or four weeks left in the heart of winter, the stakes are high for natural gas,” the EBW analysts said.

Forecasts Tuesday still called for solid blasts of cold late this month – with lows in the teens across much of the northern United States – though not as cold as the subzero temperatures previously anticipated. The colder temperatures were not likely to last deep into the first week of February as earlier outlooks anticipated.

Models over the weekend trended “more toward a dominant” positive Eastern Pacific Oscillation pattern and did so “while lessening the influence” of North Atlantic Oscillation blocking, Bespoke Weather Services said. This would result “not only in less cold as we move into the latter part of January but sets the stage to actually revert back warmer than normal into February.”

“It is getting difficult to envision any sustainable rally at this stage, as the cold forecasts for the conclusion of this month are failing versus expectations from the other day, and we are already seeing signs of the turn back to a warmer-than-normal regime into February,” the firm said. 

Strong U.S. liquefied natural gas (LNG) export levels, driven by steady northern Asia demand amid harsh winter conditions and supply interruptions, hovered above 11 Bcf and near record levels early in January, NGI data show. However, LNG volumes dipped below the 11 Bcf threshold on Tuesday.

In a holiday abbreviated week, markets will have to wait an extra day to see if LNG demand factored into the domestic storage withdrawal for last week.

Because of the Martin Luther King Jr. federal holiday on Monday and Inauguration Day on Wednesday, the U.S. Energy Information Administration (EIA) will release its weekly storage report on Friday, a day later than usual. The agency will also post its weekly petroleum status report on Friday, two days later than normal.

EIA last Thursday reported a withdrawal of 134 Bcf from natural gas storage for the week ended Jan. 8, eclipsing the year-earlier pull but not the five-year average. EIA recorded a 91 Bcf withdrawal for the comparable period in 2020, while the five-year average withdrawal was 161 Bcf.

Early estimates call for a steeper pull with this week’s report – with Bespoke, for one, looking for a 177 Bcf withdrawal.

“The very notion that traders are unwilling to pay a premium to own gas for delivery in a month when we see net withdrawal of gas from underground storage is a clear bearish fundamental telltale,” said analysts at the Schork Report.

The presidential inauguration of Joseph Biden, projected to be underway by midday Wednesday, was expected to dominate the news in the first half of the week. Analysts said market-moving news was more likely to trickle out over this week and next from Senate  hearings to confirm or rebuff Biden’s cabinet selections as well as his choices to head regulatory agencies.

“The media attention is mostly focused on the inauguration, but the confirmation hearings for Biden’s cabinet is where the real action is,” said Stifel Financial Group’s Brian Gardner, chief Washington policy strategist.

On the pandemic front, the United States on Tuesday eclipsed 400,000 reported deaths tied to the novel coronavirus, reflecting an acceleration of the disease’s spread this winter, according to the Covid-19 Tracking Project.

Biden has said he would prioritize more widespread vaccination efforts in his first 100 days, though he also has cautioned that the virus is likely to be widespread the remainder of winter.

Cash Prices

Spot gas prices sunk across the Lower 48 as mild weather settled in and was expected to hang around for at least a couple days, diminishing heating demand.

Demand “will be light across much of the U.S. this week with the exception being the Great Lakes and interior Northeast as a frigid cold shot over southern Canada” delivers a glancing blow “with chilly highs of 20s and 30s,” NatGasWeather said. “But with much of the rest of the U.S. experiencing highs of 40s to 70s, demand just won’t be strong by late January standards.”

Conditions later in the week, however, could drive stronger heating needs.

“Frigid air will push into the West and northern Plains late this week,” notably including the potential for lows in the 30s in Southern California, NatGasWeather said. “A shot of this subfreezing air will release across the Midwest and Northeast this weekend, with lows of zeroes to 20s for a swing to strong national demand.”

Prices Tuesday reflected the soft demand to start the week, with double-digit declines in every region.

In the Midwest, where temperatures were above normal Tuesday and predicted to rise into Wednesday, Chicago Citygate shed 20.0 cents day/day to average $2.450, while Dawn dropped 19.5 cents to $2.450

In Texas, where temperatures were also comfortable, El Paso Permian lost 16.0 cents to $2.415 and Waha fell 15.5 cents to $2.405.In the Northeast, where prices have proven volatile in recent weeks, Algonquin Citygate dropped 91.0 cents to $4.295, while out West, Kern Delivery fell 16.5 cents to $2.740.