Natural gas futures settled nearly flat on Tuesday, but not before the March Nymex contract surged over the $3.00/MMBtu threshold. The prompt month reached an intraday high of $3.005 as the frigid air blanketing much of the eastern United States this week was seen continuing through at least the first half of the month.
However, with the latest run of the European weather model erasing a decent chunk of projected demand, the March contract retreated back to a $2.845 settlement. April closed the day at $2.818.
Spot gas continued to strengthen, with prices nearing $15.000 in New England. NGI’s Spot Gas National Avg. climbed 44.5 cents to $3.750.
Weather models made huge changes to the colder side over the weekend and on Tuesday, continued updates added demand to the 15-day outlook. The European model gained 23 heating degree days (HDD) for Saturday (Feb. 6) through Feb. 16. The midday American Global Forecast System, meanwhile, added another 5 HDDs, with the model showing a frigid pattern across much of the northern half of the country during that time period, including bouts of subfreezing air into Texas and the South, according to NatGasWeather.
“With the supply/demand balance already tight, the natural gas markets have been impatiently waiting for sustained winter cold to arrive, and this is the first time the past two winters it’s likely to finally come through,” NatGasWeather said.
How long the cold lasts is still unclear, but signs point to a frosty pattern more or less continuing through the middle of February, according to the forecaster. As long as frigid air is able to hold over Western Canada, it would provide an opportunity to release and push into the northern United States at times, though there could be some milder breaks.
“Essentially, if there were to be a milder break around Feb. 15, it might only be brief before another cold shot arrives,” NatGasWeather said.
That theory still had legs even after the European model wrapped its final run of the day. NatGasWeather said the model “wasn’t quite as extreme” with the projected cold for Monday (Feb. 7) through Feb. 9. It did hold much colder trends from Monday night for the Feb. 10-14 period. Overall, both the latest GFS and European models are “impressively cold” beginning Saturday through Feb. 15, with widespread lows ranging from the minus 20s to the 20s across the northern half of the United States.
Day Of Reckoning
Mobius Risk Group said it would be interesting to see how the market fares approaching Thursday’s government storage inventory report and the projected intrusion of Arctic air. Market expectations for the next Energy Information Administration (EIA) report are for a withdrawal slightly above 190 Bcf.
“From a weather-adjusted perspective, anything less than a 200 Bcf withdrawal would be modestly bearish year/year,” Mobius said. “However, combined with the upcoming cold shot, it could drive down end-of-March inventory estimates to a level which has those with short interest reconsidering their exposure.”
As of Jan. 22, total working gas in storage stood at 2,881 Bcf, which is only 78 Bcf above year-ago levels and 244 Bcf above the five-year average, according to EIA.
Energy Aspects said HDDs for the next EIA reference period ending Jan. 29 would be 20% higher week/week based on preliminary estimates that showed residential/commercial demand up by 8.6 Bcf/d on the week. The firm said the coldest days were seen straddling the reference week and the current week, which would spread out the withdrawal over both weeks and push any impacts on production, such as freeze-offs in the Northeast, into the following EIA report, scheduled for Feb. 11.
“The frigid day of reckoning may finally be upon us,” Energy Aspects said.
The firm’s call for a 199 Bcf draw in Thursday’s EIA report would represent the highest stock draw of the year so far on weekly HDDs that are 8% above the 10-year average, “even if the cold was less severe than initially forecast.”
A similar pattern is taking shape for the first half of February, which is currently forecast to be nearly 15% colder than normal in terms of HDDs, according to Energy Aspects. That level of cold should continue to support Henry Hub by further tightening year/year balances, but much would depend, once again, on the severity of the cold that is realized.
That said, the so-called widowmaker spread between the March and April Nymex contracts contracted a bit on Tuesday. The March contract’s premium over April shrunk by a penny to around 2.0 cents after the latest run of the European weather model gave back more than a dozen HDDs.
NatGasWeather said prices continued to soften after the close, moving into negative territory even as a “still solidly bullish” pattern was setting up for next week. “If that was a technical correction, that was an impressively swift and decisive one.”
Another ‘Blockbuster’ Storm
Spot gas prices continued to surge Tuesday across the country, but gains continued to come in strongest in the Northeast. The region, not yet fully on the other side of a record-setting snowstorm, was already preparing for another in its wake.
AccuWeather said the second storm could form in the same area as the last, with the potential for it to chug right up the East Coast and dump heavy snow on areas that were pummeled this week. Meanwhile, the blast of Arctic air may plunge nearly two-thirds of the country into a deep freeze that would likely bring some of the season’s lowest temperatures yet.
“For at least the next week, the weather looks pretty tumultuous in the eastern two-thirds of the United States,” AccuWeather senior meteorologist Rob Miller said.
AccuWeather said it would take days for the pattern to take shape that could spawn a whopper of a storm along the East Coast, and it will all be set into motion by a winter storm that will sweep into the Plains Thursday into Friday. This initial storm is forecast to sweep across the Midwest on Saturday, but as it moves off to the Northeast, big changes may come into play for another hard-hitting winter storm.
“One particularly important piece will be a weak storm moving through the Ohio Valley and Great Lakes ahead of the big storm,” AccuWeather senior meteorologist Brett Anderson said.
This storm could draw the coastal storm westward, leading to a track closer to the coast and likely a blockbuster snowstorm for the East,” according to the forecaster. However, the same storm could instead help to push the next, larger storm farther off the Atlantic coast, which would, in turn, cause it to bypass most, if not all, of the East Coast.
With demand still hovering above 4 Bcf/d in New England alone, prices across the Northeast rallied. Tennessee Zone 6 200L spot gas rocketed $3.745 higher day/day to average $12.450. Transco Zone 6 non-NY climbed a much more subdued 62.0 cents to $5.300.
Appalachia prices rose close to 40.0 cents in some locations. Dominion South cash was up 33.0 cents to $2.950.
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