Natural gas futures rallied again on frigid temperatures and mounting heating demand, continuing an uninterrupted stretch of gains that dates to the opening session of 2024.
At A Glance:
- Prompt month tops $3.300
- Weather data bullish
- Production declines 2 Bcf/d
Coming off steady advances last week and an 8.7-cent gain to begin this week, the February Nymex gas futures contract settled at $3.190/MMBtu on Tuesday, jumping 21.0 cents day/day. The front month exceeded $3.300 at its height in intraday trading Tuesday.
NGI’s Spot Gas National Avg. soared 60.5 cents to $3.595, meanwhile, with significant gains across all regions.
The bullish momentum Tuesday was fueled by the arrival of harsh winter storms in the Mountain West and central United States along with widespread freezing temperatures in northern markets.
NatGasWeather noted two strong storms impacting the Lower 48, with one over the Northwest producing fierce winds and snow. A larger second storm pummeled parts of the Plains and Midwest to start the week and was tracking across the Great Lakes and into the East on Tuesday.
Looking ahead, the firm added, bone-chilling air over southwest Canada was “advancing aggressively” and could expand across the United States this weekend and next week, ushering in subzero lows over parts of the northern half of the country. Bitter cold lows in the teens could impact markets as far south as Texas.
During that span, “freeze-offs are likely to reduce production by 2-3 Bcf/d,” NatGasweather said.
Production slipped to 104.1 Bcf/d on Tuesday, according to Wood Mackenzie, down about 2 Bcf/d from the start of the week and 2024 highs.
Wood Mackenzie analyst Laura Munder said the reductions were largely because of interruptions in the Permian Basin that included an El Paso Natural Gas force majeure attributed to an equipment failure. It necessitated the temporary closure of one station.
Munder said upward revisions in Texas were expected this week.
However, the frosty conditions in the North were expected to cause freeze-offs in the Rockies, North Dakota and the Northeast that could keep production lower.
“Predicted temperatures” are “low enough that the risk of a freeze is now a substantial one for most major production areas,” analysts at Gelber & Associates said.
Storage Outlook
Mobius Risk Group analysts noted that the January freeze could result in steeper storage withdrawals and chip away at hefty underground supplies. Winter weather is now “pronounced squarely along the continental divide with all locations to the East setting up for a colder than normal second half of January,” they said.
“Colder than normal temps do not make it to the eastern seaboard until Sunday, but once they do, models keep the pattern firmly entrenched” for several days, the Mobius team said. “The intensity of the cold peaks during the middle of next week, right at a time when the market may get its first glimpse at the potential for a weekly storage withdrawal of greater than 200 Bcf.”
For the next U.S. Energy Information Administration (EIA) inventory report, scheduled for Thursday and covering the first week of January, early draw estimates reported to Reuters averaged 123 Bcf. NGI modeled a pull of 121 Bcf. That compares bullishly with a five-year average decrease of 87 Bcf.
EIA most recently posted a pull of 14 Bcf from underground supplies for the week ended Dec. 29. It fell far short of historical norms and market expectations for a draw in the mid-30s to low 40s Bcf. The five-year average pull for the period was 97 Bcf.
The decrease lowered inventories to 3,476 Bcf, but stockpiles were still 13% above the five-year average.
Steve Blair, a veteran gas broker and independent analyst, told NGI that sustained winter weather and several strong storage withdrawals were likely needed for bulls to keep prices above the $3 level for long.
Storage is “still very high” and elevated national demand through the heart of winter is needed to balance the market, he said.
Cash Prices Cruise
Spot gas prices advanced across the Lower 48 on Tuesday, bolstered by the blasts of winter and forecasts for more ahead.
The threat of production curtailments also propelled prices in the West, where SoCal Citygate surged $1.175 day/day to average $6.160.
In the Rockies, El Paso San Juan jumped $1.500 to $6.090, and in the Midcontinent, OGT climbed 52.5 cents to $2.915.
Meanwhile, Chicago Citygate gained 48.5 cents to $3.050, while El Paso Permian in West Texas advanced 38.5 cents to $2.360.
In the East, Cove Point sailed ahead 99.0 cents to $4.240.
NatGasWeather attributed the price strength to winter’s arrival – after a mild December that had suppressed prices. It said another bitter cold shot was expected to permeate the Rockies and Midwest late this week with lows ranging from below zero to around 20. That air could then advance across much of the country next week.
The latest outlook from Maxar’s Weather Desk, covering Sunday through Jan. 18, also noted “an Arctic air mass” spilling southward from Canada into the Lower 48. “Much and strongly below normal temperatures favor the Rockies, Plains, Midwest and South, with the coldest of the forecast having lows falling below zero in Chicago and St. Louis, upper 10s in Dallas and Philadelphia, and low 20s in Atlanta.”
For the Jan. 19-Jan. 23 time frame, Maxar observed Tuesday a “likewise colder” change to the outlook, with below normal temperatures expected to stick around over the eastern half of the country through the middle of the 11- to 15-day period.
“However, the seeds of a pattern change are being sowed, as Arctic blocking breaks down and a ridge over Alaska from the six- to 10-day period retrogrades into eastern Russia,” according to Maxar. “This should limit the polar connection in favor of Pacific flow, with above normal temperatures first being in the West and expanding into Central at the end of the period.”
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