Natural gas futures advanced Friday as traders shrugged off a disappointing government inventory report and focused instead on robust heating demand, as well as forecasts for additional blasts of freezing weather later in January.
At A Glance:
- Freezing conditions invade the East
- Forecasts call for more cold ahead
- Demand for U.S. exports holds strong
The February Nymex gas futures contract gained 10.4 cents day/day and settled at $3.916/MMBtu. March climbed 5.6 cents to $3.726. NGI’s Spot Gas National Avg. shed 69.0 cents to $5.570, but only after soaring nearly $2.00 over the two prior days.
The latest weather on Friday trended colder overall for the final third of January. This would build on a frigid start to the month that included subzero temperatures during the first trading week of the year in the Upper Midwest and snowstorms across much of the East and as far south as Tennessee.
The frosty conditions propelled spot prices and added support for futures on Friday.
Erratic Weather Forecasts
NatGasWeather noted Friday that weather outlooks early this year have been erratic. However, “the pattern is still the best it’s been so far this winter season as a frigid blast is currently driving strong national demand.”
Another round of bitter cold is expected early in the week ahead “with a similar track” that would begin with icy conditions in the Midwest before moving to the East, the forecaster said. Later in January, the firm added, another blast of cold air is expected to descend from Canada into the northern United States.
At the same time, natural gas production early in 2022 is far from last year’s highs of around 97 Bcf. Output hovered near 92 Bcf on Friday, as it did most of the trading week. The culprit: Freezing conditions in the Permian Basin that interrupted production work in recent days.
RBN Energy LLC analyst Jason Ferguson noted that output in the Permian had topped 14 Bcf/d late in 2020, but it has consistently held below that threshold in recent days. That noted, he expects production in the prolific basin to rebound when weather permits, eventually eclipsing the 15 Bcf/d level this year to meet demand.
“Assuming we are in the ballpark,” he said, “Permian gas should move higher throughout the year.”
In the meantime, however, supply is trailing demand early in the new year. Winter conditions across Asia have boosted demand for U.S. exports of liquefied natural gas (LNG), adding to bullish sentiment.
Additionally, cold weather and low levels of gas in storage in Europe have necessitated steady calls for American gas from the continent. Robust European demand is widely expected to extend through the winter, given that already low volumes of gas from Russia may be at risk for months to come. Russia’s recent military buildup on the border of Ukraine has amplified tensions. It also has heightened concerns that gas that would otherwise flow through Ukraine may not arrive this winter.
Analysts at investment bank UBS Group AG estimated that, in the event of a cold winter, European supplies could dwindle to as low as 11% by the end of March. Should the winter prove exceptionally harsh or long, supplies could shrink further. Against that backdrop, European prices have soared in recent months and, by extension, so has demand for U.S. LNG.
‘Shifting In The Bulls Favor’
The demand catalysts outshined a bearish U.S. Energy Information Administration (EIA) storage report from Thursday. EIA posted a 31 Bcf withdrawal for the final week of 2021. The print was far lighter than expectations for a build in the 50s Bcf. It was even more bearish relative to the 127 Bcf withdrawal a year earlier and the 108 Bcf five-year average. Inventories exited the week ended Dec. 31 at 3,195 Bcf, 3.1% above the five-year average of 3,099 Bcf, according to EIA.
Analysts at the Schork Report called the latest pull “pitiful.” Still, they noted it developed during the Christmas holiday week, and they emphasized that January cold was expected to push storage data back to seasonal norms. “The winds are shifting in the bulls favor,” the analysts said.
Meanwhile, the U.S. Department of Labor on Friday reported that hiring eased in December to 199,000 new jobs. The final report for 2021 also showed that employers added a record number of positions during the year. Job growth averaged 537,000 per month last year.
The December unemployment rate declined to 3.9% from 4.2% the prior month, as nearly 170,000 people joined the workforce. Average hourly wages increased 19 cents month/month to $31.31 in December and rose 4.7% on an annual basis.
The data does not capture the full impact of the Omicron variant of the coronavirus, economists noted, but a separate data set indicated that employers have little interest in layoffs. Jobless claims totaled 207,000 last week, near a 50-year low.
Raymond James & Associates Inc.’s Scott Brown, chief economist, said the jobs report was “mixed.” He said economists had hoped to see stronger overall gains, but the falling unemployment rate signals employers are eager to hire new entrants to the job market.
Spot Prices Mixed
Cash prices overall declined on Friday after hefty gains the two previous sessions. Prices in the Midwest leveled off, while hubs across Texas declined following cooler weather earlier in the week.
Waha in Texas lost 20.0 cents day/day to average $3.400, while Chicago Citygate inched up 4.0 cents to $3.960.
To the East, however, several hubs continued to advance after heavy snow buried parts of Kentucky and Tennessee, including Nashville, before the storm system pushed into major markets from New York to Boston on Friday.
Tennessee Zn 4 313 Pool in Appalachia gained 19.0 cents to $3.385. In the pipeline-constrained Northeast, meanwhile, PNGTS climbed another $1.180 to $23.870 on Friday after spiking by $9.500 the prior day.
Meanwhile, drought conditions continue to minimize hydropower in the West, but mild weather in California and neighboring states in recent days has kept prices in check.
KRGT Del Pool in the Southwest fell 41.5 cents to $4.830, while PG&E Citygate in California shed 22.5 cents to $4.930
Looking ahead, mild weather over much of the Lower 48 was expected for the weekend, NatGasWeather said Friday. However, “another cold shot will track across the Midwest and East” early in the coming week, delivering more snow and lows ranging from below zero to the 30s “for another round of strong demand.”
While a majority of the country is expected to be warmer than normal by next weekend, the firm said freezing air will again spread across vast expanses of the northern United States in the third week of January “for moderate to high national demand.”
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January 08, 2022 at 06:13AM
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Natural Gas Futures Fly Higher Amid Snowstorms, Forecasts for Further Freezes - Natural Gas Intelligence
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