Weekly natural gas cash prices extended a January rally ahead of the holiday weekend, buoyed by bouts of freezing weather, robust heating demand and winter-induced production curtailments.
Hubs throughout the Midwest and East endured freezing overnight lows to start the week, fueling heating demand and an early surge in prices. Expectations for snowstorms and another round of bitter cold over the weekend propelled prices later in the week.
“It’s not rocket science: the colder it gets, the more people need to burn gas, and then prices go up,” Thomas Saal, StoneX Financial Inc.’s senior vice president of energy, told NGI.
Northeast cash prices led the charge. As the trading week closed, PNGTS was up $7.030 to $22.505, while Iroquois Zone 2 was ahead $10.130 to $23.220 and Maritimes & Northeast was up $8.080 to $22.000.
Also during the covered period, production remained subdued from extended freeze-offs the prior week in the Permian Basin, MidContinent and the Rockies. This added upward pressure on prices from the supply side, Saal said.
The weather and supply factors in concert with strong demand for U.S. exports of liquefied natural gas (LNG) bolstered bullish sentiment in the futures market during the week. “Weather is always king, especially in the winter, but there are multiple drivers right now,” Saal said.
The February Nymex futures contract settled at $4.262/MMBtu to close the trading week on Friday, up 9% from the prior week’s finish. It rallied in three of the week’s five trading sessions.
Forecasters anticipated even stronger weather-driven demand later in the month.
“It remains a much colder forecast compared to normal, with a strong trough still expected to impact the eastern half of the nation into the final third of the month,” Bespoke Weather Services said. The “intensity of cold can ease right around month-end,” though weather models at that point “are not close to being back warm, by any means.”
Futures Forge Ahead
U.S. LNG feed gas volumes held above 12 Bcf all week and exceeded 13 Bcf Friday amid solid demand from Asia and Europe for American deliveries of the super-chilled fuel, bolstering the bull case for futures.
Europe, in particular, is light on supplies following extreme weather and robust demand in 2021, and pipeline flows from Russia have proven lighter than hoped amid political strife between that country and Ukraine. European demand for U.S. LNG is expected to hold strong through the winter and beyond.
The “economics for U.S. LNG exports are riding high,” said RBN Energy LLC analyst Lindsay Schneider.
The export demand combined with winter conditions and modest production in the United States resulted in a triple-digit withdrawal from storage with the latest Energy Information Administration (EIA) print.
EIA on Thursday reported a pull of 179 Bcf natural gas from underground inventories for the week ended Jan. 7. The result was in line with market expectations.
Analysts had anticipated the steepest draw from storage so far this winter because of freezing conditions over the Midwest and Plains that fueled robust heating demand during the covered week. The winter conditions stretched as far south as Texas, causing production freeze-offs.
By region, the Midwest led with a pull of 58 Bcf, according to EIA. The South Central followed closely with a withdrawal of 55 Bcf. The latest pull decreased inventories to 3,016 Bcf, leaving stocks below the year-earlier level of 3,215 Bcf but above the five-year average of 2,944 Bcf.
Marex North America LLC’s Steve Blair said that, with the looming burst of Arctic air expected to descend from Canada into the central and eastern United States around Jan. 20, robust storage pulls are likely in the weeks ahead. This could add further support for futures, he said.
“The weather we have coming yet this month, I think people are going to buy into the market,” Blair, a senior account executive, told NGI.
Friday Cash Flies
Spot prices spiked in the East on Friday for weekend through Tuesday delivery ahead of a cold front, lifting the national average. NGI’s Spot Gas National Avg. gained 34.0 cents to $6.790.
NatGasWeather said Friday a strong weather system with areas of snow was expected to sweep across the central and eastern United over the weekend, ushering in subzero lows in northern markets and lows in the 20s elsewhere for strong demand. The system had already set up over the Upper Midwest on Friday, with snow and highs in the teens.
NatGasWeather expected a mild break over most of the country early in the week ahead, with highs of 30s to 70s. However, the firm added, frigid Arctic air should advance into the northern and eastern United States late in the week with lows ranging from minus 20s to the 20s “for very strong demand.”
From there, the forecaster said, “very cold air will spread across the eastern half,” including at times “chilly lows of 10s and 30s into the southern U.S.”
The West Coast and Southwest, however, are expected to be mostly mild in the second half of January “as high pressure rules with highs of 50s to 70s,” the firm added.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1258 |