Natural gas futures slipped lower for a second consecutive day, as traders continued to focus on bearish shifts in domestic weather outlooks even as war raged in Ukraine and Western sanctions against Russia threatened to send global commodity prices to record highs.

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At A Glance:

  • Futures price action a head-scratcher
  • End-October storage seen lower
  • Canadian cash deeper into negative territory

The April Nymex natural gas futures contract settled at $4.527/MMBtu, down 30.6 cents day/day. May shed 29.5 cents to $4.563.

NGI’s Spot Gas National Avg. fell 17.0 cents to $4.520.

NatGasWeather attributed declines to “an increasingly bearish setup” in the weather outlook for next week. Both the American and European weather models extended warmer trends Tuesday, according to the firm.

“While the coming six days are rather bullish with stronger-than-normal national demand, the March 15-22 U.S. pattern has trended increasingly bearish as above-normal temperatures over the southern U.S. expand to cover most of the northern U.S.,” NatGasWeather said. This would drop national demand to “the lightest levels in months,” and the data as of Tuesday suggested the milder pattern could stick around through late March.

Still, even as bears appeared to have “wrestled momentum away from bulls,” Russia’s invasion of Ukraine remains a source of uncertainty, destabilizing markets, the firm said.

This “could again be a reason if U.S. gas prices rally” in coming days, NatGasWeather said. 

Indeed, catalysts lurk in market bulls’ favor.

Production dipped to 93 Bcf on Tuesday from nearly 95 Bcf a day earlier, according to Bloomberg’s estimate.

Exports of U.S. liquefied natural gas (LNG) have hovered around 13.5 Bcf most of March – near record levels amid robust demand from Europe, NGI estimates show.

And, of course, the Russia-Ukraine war looms large.

President Biden on Tuesday banned imports of Russian oil and natural gas in a move that punctuated already severe sanctions against the Kremlin and the prospect for higher energy prices amid the crisis.

Biden called it “another powerful blow” against Russian President Putin’s “war machine” and its assault on Ukraine. But he also cautioned that “defending freedom comes at a cost” and “it’s going to cost us as well” in the form of higher oil and gasoline prices – and potentially higher natural gas costs.

Brent crude prices reached $130/bbl in Tuesday trading – up $5 after the ban news broke Tuesday morning and up more than 50% since the start of the year. 

Rystad Energy analyst Kaushal Ramesh noted that European gas prices reached an all-time intraday high on Monday in anticipation of the ban and amid intensifying worries that the war in Ukraine could disrupt or even cut off gas flow from Russia to Europe.

“The West has emphasized that all options for sanctions remain on the table” and, as such, “upside risk” to oil and gas prices remains elevated, Ramesh said. 

In a worst-case scenario, Barclays analyst Amarpreet Singh said Brent prices could surge beyond $200.

EBW Analytics Group noted that Russian Deputy Prime Minister Alexander Novak warned of $300 oil, “if not more,” should the West, as a whole, embargo Russian oil exports. Novak also threatened to turn off natural gas to Europe in retaliation.

War Imposes Global Disorder

Still, EBW senior analyst Eli Rubin said, “political pressure to take action against Russia remains acute” and major energy companies are jumping aboard. A case in point: Shell plc said Tuesday it is withdrawing its involvement in “all Russian hydrocarbons,” including oil, natural gas and LNG.

“European political leaders appear to have edged away from an outright ban on Russian oil in recent days,” Rubin added, “understanding the economic ramifications from spiking oil and natural gas prices could rapidly lead to a disgruntled population” and “cost them key elections.”

But, he noted, prices are soaring anyway. Benchmark European gas prices jumped above $100 on Monday.

Last week, U.S. natural gas futures followed global oil and gas prices higher, rising 12%.

“After trading in lockstep with crude oil,” forecasts for next week that show warmer Lower 48 weather “shocked the market into a fundamental reawakening,” Rubin said.

But he also said the global disorder imposed by Russia’s war could quickly change the trend for U.S. gas futures.

Ramesh agreed: “Fundamentals are no longer the key driver of the market” on many days.

Spot Prices Sink

Next-day cash prices descended along with futures on Tuesday, with traders looking beyond near-term cold to a seemingly inevitable pullback in demand next week.

NatGasWeather said “strong national demand” would likely “endure through the weekend as a current weather system over the Midwest with areas of rain, snow and frosty lows” spreads south and eastward. An even “more impressive reinforcing cold shot” is expected later in the week.

This cold front is forecast to deliver lows in the teens to 30 in northern Texas and portions of the South.

However, by next week, the firm projects above-normal temperatures over most of the Lower 48, “with very comfortable late winter highs of 50s to 80s.” The mild conditions could last until at least March 24, with uncertainty beyond that point.

“National demand will be light as high pressure strengthens and expands” next week, NatGasWeather said.

Against that backdrop, cash prices clunked across the country.

Chicago Citygate lost 15.5 cents day/day to average $4.550, while in Texas, Waha dropped 29.0 cents to $4.120.

Out West, SoCal Citygate lost 22.5 cents to $4.520, and KRGT Del Pool fell 15.0 cents to $4.540.

On the East Coast, Cove Point fell 11.5 cents to $4.700.