After Major Weather Model Reversal, Natural Gas Futures Plunge Back Toward $2.50

Natural gas futures plummeted on Monday as weekend weather models shed a huge amount of demand from the 15-day outlook. Though LNG demand hit a fresh high amid a key export facility’s return of operations, the April Nymex contract settled 43.7 cents lower at $2.572/MMBtu. May futures dropped 41.1 cents to $2.730.

Spot natural gas prices were mixed, with the West Coast and Northeast posting sharp increases while most other U.S. locations softened from Friday. NGI’s Spot Gas National Avg. ultimately climbed 15.0 cents to $3.445.

There is another bout of chilly air on the way. NatGasWeather said U.S. demand would increase beginning Wednesday as colder-than-normal temperatures gain ground over the northern part of the country, including the Great Lakes, Ohio Valley and Northeast. Although the cooler pattern should continue through Saturday, the latest models do not advance subfreezing temperatures as aggressively into the southern half of the country.

“The weekend weather data maintains colder reinforcing shots following March 12-18 – with most of the U.S. still cooling below normal – just not as impressively cold as Friday’s data showed,” NatGasWeather said.

The forecaster cautioned, however, that the pattern could trend warmer as it moves forward in the outlook. The same theory applies to current projections for a colder-than-normal pattern in late March.

“There’s potential for the weather data to trend back colder the next few days, although any further warmer trends and it could inflict further damage to the bullish case,” NatGasWeather said.

EBW Analytics Group noted that with the “March weather pattern imploding,” the reversal has “slashed the fundamental support underlying recent price gains.” That said, Monday’s swift correction lower is, in part, a market reaction to last week’s rally overextending to the upside.

“Nymex gas futures likely surpassed fair value late last week and may consolidate lower in coming weeks,” EBW senior energy analyst Eli Rubin said.

Strong Power Burns, LNG

While the gas market may not be getting much support from Mother Nature, rising power burns amid the lower price environment are providing some momentum.

Tudor, Pickering, Holt & Co. (TPH) analysts said though supply/demand balances remain loose, the natural gas percentage of the power stack is steadily improving the situation. Over the last seven days, power burns have risen over the last seven days from a Jan. 1-to-date average of 67% to around 73%, or 2-2.5 Bcf/d of incremental demand.

“Our work suggests the majority of switching was likely to occur below $2.50, so it will be important to watch data in mid-March if the strength in the prompt month remains at these levels,” TPH analysts said.

Even if cold weather materializes this month, warmer trends through January and February already have pushed balances well above historical norms, according to TPH.

Inventories as of Feb. 24 stood at 2,114 Bcf, which is 451 Bcf above year-earlier levels and 342 Bcf above the five-year average, the U.S. Energy Information Administration said in its latest storage report.

What’s more, early estimates ranging for the next EIA report point to another modest withdrawal when compared with historical pulls – in the range of 62 Bcf to 83 Bcf. NGI modeled a 62 Bcf draw.

This would compare with last year’s 126 Bcf decrease for the similar week and the 101 Bcf five-year average pull.

While the long-term storage trajectory is highly price-dependent and considerable uncertainty remains, the market currently is on pace for stocks to reach 4,100 Bcf at the end of October – an unsustainably elevated level, according to EBW. “Natural gas is likely to rebalance lower into the spring shoulder season.”

Meanwhile, TPH analysts also noted that supply has been running a bit higher than expected so far this year, with an average of 100.5 Bcf/d, notably driven by strength in the Permian Basin and Haynesville Shale.

The firm also plans to watch LNG demand between April and June as data points from corporate conversations suggest the industry may go into a heavier turnaround this year. Many liquefied natural gas facilities delayed maintenance in 2022 given strong export margins.

“Pulling it all together, our views remain unchanged that current supply demand balances will push storage above 4 Tcf on normal weather and will continue to force the strip lower to correct supply heading into 2024,” the TPH team said.

More Volatility For West, East Coasts

Spot gas prices were lower across much of the country, with springlike temperatures warming to the 60s to 80s and sapping demand.

In Texas, the biggest losses were seen in West Texas. Waha next-day gas prices tumbled 37.0 cents from Friday to average $1.800 for Tuesday’s gas day.

Smaller price declines were seen in the Midwest and Midcontinent. Chicago Citygate cash slipped 10.5 cents to $2.440, while OGT fell 16.5 cents to $2.175.

Similar price discounts were seen throughout Louisiana and the Southeast before tapering off in Appalachia, where Eastern Gas South shed 3.0 cents to average $2.300.

In the Northeast, meanwhile, prices across New England shot sharply higher amid a quick-moving storm that could send temperatures plunging. Tenn Zone 6 200L spot gas climbed $1.740 from Friday to average $6.295.

A series of weather systems out West lent support to prices there.

The National Weather Service (NWS) said disturbances dropping south offshore of the West Coast and then eastward to the Rockies would be responsible for periods of rain and snow. Locally heavy snow was possible from the mountains of southwestern Oregon into northern California. Up to two feet was in the forecast through Wednesday evening, according to NWS.

Snow also was forecast to spread into Nebraska and the Northern Plains from Tuesday into Wednesday. Accumulations of up to six inches are expected from western South Dakota into much of North Dakota, with areas of snow expanding southward into Nebraska for Wednesday night.

On the pricing front, Northwest Wyoming Pool cash jumped $2.110 from Friday to average $9.325 for Tuesday’s gas day.

Prices in northern California hit a high of $12.500, with PG&E Citygate averaging $11.395 for next-day flows. The SoCal Border Avg. was up 92.0 cents to average $7.320.

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