In a holiday-abbreviated period in which futures struggled, weekly natural gas cash prices sustained just enough momentum to post a third consecutive gain.
NGI’s Weekly Spot Gas National Avg. for the Jan. 18-21 period advanced 20.5 cents to $6.155. The covered week was shortened by a day due to the Martin Luther King Jr. holiday on Monday.
The gain for the week kept alive a 2022 win streak after strong gains the first two weeks of January. Conditions during the latest week were mild at times and spot prices fluctuated, but there was enough cold in the Midwest and East to keep gas-powered furnaces cranking and prices on an upward climb.
On the futures front, meanwhile, the potential for a warm-up next month pressured the February Nymex contract during the week. It finished Friday at $3.999/MMBtu, down 6% from the prior week’s finish.
Looking to the week ahead, forecasts called for a bitter cold pattern over the northern and eastern United States. However, outlooks waffled between continued frigid air into February and broadly milder conditions early next month.
“Models gravitate toward more of a western U.S. trough and a downstream eastern U.S. ridge, which would equate to a warmer than normal pattern on the national level,” Bespoke Weather Services said.
Despite the weekly decline, potential catalysts for futures continued to abound, not the least of which was robust U.S. liquefied natural gas (LNG) export activity. With European demand for American gas elevated, LNG feed gas volumes hovered around 13 Bcf and near all-time highs during the week.
“No question we are in a global demand environment now, and when that demand is elevated, it’s usually going to have an influence on prices here,” U.S. Global Investors Inc. head trader Mike Matousek told NGI.
At the same time, production during the week held well below recent highs near 97 Bcf. Estimates late in the week pegged output at just above 92 Bcf, as the effects of harsh weather that curtailed production earlier in the month lingered.
That brutal round of cold earlier in January, coupled with LNG strength and lower production, resulted in the steepest storage decrease of the winter season.
The Energy Information Administration (EIA) on Thursday reported a 206 Bcf pull from storage for the week ended Jan. 14. Frigid conditions permeated the Plains, Midwest and East during that week, fueling heating demand and interrupting production, and necessitating the elevated withdrawals.
EIA recorded a pull of 179 Bcf for the similar week a year earlier, while the five-year average is 167 Bcf.
By region, the South Central led with a 69 Bcf withdrawal, including a 48 Bcf pull from nonsalt facilities and a 22 Bcf pull from salts, according to EIA. Midwest stocks fell by 65 Bcf, while the East dropped by 61 Bcf.
Total working gas in storage as of Jan. 14 stood at 2,810 Bcf, which is 226 Bcf below year-ago levels and 33 Bcf above the five-year average, EIA said.
But, as analysts at The Schork Report noted, weather is ultimately king in natural gas markets – and the outlook for February failed to impress enough to support futures in the latest week, given the potential for a warm-up next month.
The “weather gods are betting against gas bulls,” The Schork Report team said. “The prospect of bullish heating demand for the start of next month is poor.”
Friday Spot Prices Sink
Physical gas prices dropped on Friday for weekend through Monday delivery, led lower by widespread declines in the East. Prices had soared across eastern hubs earlier in the month and remained elevated, but upward pressure eased after a midweek spate of seasonally mild weather.
NGI’s Spot Gas National Avg. shed 61.0 cents to $5.990.
While the mid-range outlook proved a tad dubious in recent days, NatGasWeather said the near-term outlook was nearly as certain as it gets – and the expected cold should drive demand.
Over the weekend, the firm said Friday, a “frigid blast” was expected to take hold over the Midwest and East, with lows ranging from 20 below zero to the low 20s. Lows in the teens to the 30s were expected in Texas and parts of the South, raising the specter of both elevated demand and production freeze-offs.
After a brief break from the cold early in the week ahead, NatGasWeather added, “another frosty cold shot” is projected to deliver freezing temperatures across the northern and eastern United States, driving solid demand for much of the next trading week.
The West was expected to prove an exception, with comfortable temperatures forecast for major markets from Phoenix to Los Angeles. Ahead of that, SoCal Citygate shed 39.0 cents to $4.345 and El Paso S. Mainline/N. Baja lost $44.0 cents to $4.145.
Looking into the first few days of February, NatGasWeather said, forecasts showed cold air lingering over northern and eastern markets. However, temperatures were projected to warm across the southern United States, leaving comfortable highs in the 50s to 70s over large swaths of the Lower 48, blurring the national demand outlook.
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