Weekly natural gas cash prices gained substantial ground for the second time early in the new year amid frigid temperatures across much of the Lower 48 and lighter production readings.
NGI’s Weekly Spot Gas National Avg. for the Jan. 8-12 period cruised ahead $3.095 to $6.065.
Big gainers peppered the Lower 48. Malin in the Northwest advanced $3.775 to $8.315, while Cheyenne Hub in the Rockies jumped $4.940 to $7.310, and Lebanon in the Midwest climbed $3.660 to $6.070.
The February Nymex contract also rallied a second week, supported by spot market strength and favorable weather. It settled at $3.313/MMBtu on Friday, up 21.6 cents on the day and up 15% from the prior week’s close.
National Weather Service (NWS) data showed multiple winter blasts over the past trading week impacting the Mountain West, the Plains, Midwest and the East. Portions of the South, including northern Texas, also experienced freezing conditions that galvanized heating demand.
Forecasts pointed to the potential for even stronger demand in mid-January. Another surge of Arctic air was expected to descend from Canada over the weekend and spread across the Lower 48 as the coming trading week unfolds.
This could deliver a one-two punch on behalf of price bulls, StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI. One, it could get furnaces cranking at the highest levels of the winter to date and, secondly, it could further slow natural gas production in northern markets – from the Rockies to the Northeast.
“My guess is the cash market could absorb a lot of that demand, but it could have knock-on effects for the futures market, too, especially if the supply is lower for any amount of time,” Saal said.
Production during the past week slipped about 3 Bcf/d to around 103 Bcf/d at its lowest point, according to Wood Mackenzie estimates. Output had closed out 2023 and started the new year at record levels above 106 Bcf/d. Supplies in storage started 2024 about 13% above the five-year average as a result.
As such, further declines alongside enduring cold may be needed to sustain any rallies, according to EBW Analytics Group.
“Near-term natural gas market disruptions remain the immediate focus in mid-winter,” said EBW’s Eli Rubin, senior analyst. “When near-term weather influences recede, however, a less supportive fundamental outlook points towards ebbing prices for natural gas.”
Storage Shrink?
Futures advanced Thursday – and again Friday -- after a bullish government inventory print and predictions for more to come. This helped to solidify gains for the week.
The U.S. Energy Information Administration (EIA) on Thursday posted a withdrawal of 140 Bcf natural gas from storage for the week ended Jan 5. The result exceeded analyst expectations for a pull around 120 Bcf and far surpassed the five-year average decrease of 89 Bcf.
It reflected the onset of cold weather at the start of January. With wintry conditions extending into the second week of January and forecast to intensify in week three, analysts are looking for two more triple-digit storage increases that could bring underground stocks closer to average levels and further align supply/demand after a mild December.
The decrease for the Jan. 5 week lowered inventories to 3,336 Bcf, though stocks were still above the year-earlier level of 2,900 Bcf and the five-year average of 2,988 Bcf.
By region, the Midwest and East led with draws of 44 Bcf and 42 Bcf, respectively, according to EIA. The South Central followed closely with a draw of 41 Bcf. Mountain region stocks decreased by 8 Bcf, while Pacific inventories fell by 5 Bcf.
Looking ahead to the next EIA inventory assessment, early estimates reported to Reuters for the week ended Jan. 12 ranged from withdrawals of 116 Bcf to 161 Bcf, with an average decrease of 123 Bcf. The estimates compared with a five-year average decrease of 126 Bcf and a year-earlier decline of 68 Bcf.
Steve Blair, a veteran gas broker and independent analyst, told NGI that another steep pull could follow, given the enduring cold and recent hits to production. But the bullish trend may not last, he cautioned.
In fact, by late January, NWS data showed a milder weather pattern taking shape. Seasonally normal temperatures were forecast to spread rapidly in the final week of this month, potentially mirroring the conditions that dominated the start of winter in December. Natural gas prices slumped late in 2023 in response.
Friday Cash Rally
Cash prices on Friday for delivery over the long holiday weekend flew higher alongside the march of frigid weather across the country. NGI’s Spot Gas National Avg. swelled $13.450 to $16.770.
NatGasWeather said bitterly cold air would descend from Canada and advance through the Northwest, Rockies and Plains over the weekend and early in the coming week. It could deliver freezing rain, heavy snow, gusty winds and subzero temperatures in northern areas.
Temperatures were expected to prove mild over the South and East ahead of the Arctic blast, the firm said, before shifting notably colder by Monday as weather systems sweep through. Such conditions were projected to last through the week before beginning to warm back to average beginning around Jan. 22.
Against that backdrop, spot prices posted their strongest gains of winter across the Lower 48, with gains of $10 or more commonplace.
SoCal Border Avg., for one, surged $10.700 day/day to average $15.980 for gas delivered Saturday through Tuesday.
In Texas, Tolar Hub soared $18.955 to $21.705, while Chicago Citygate spiked $22.820 to $25.815.
In New England, PNGTS climbed $12.380 to $16.635. Tenn Zone 1 100L in the Southeast gained $10.670 to $13.520.
While the most severe weather will impact the North, AccuWeather senior meteorologist Bill Deger said Friday “that a blast of bitterly cold Arctic air will surge south along the Plains and into the South early” in the week ahead, “threatening lives, property and the power grid due to a prolonged period of subfreezing temperatures…It may end up representing the most widespread and coldest air mass the country will endure all winter.”
A “piece of the same storm that will impact the South can also reach the mid-Atlantic and Northeast, marking a continuation of the stormy pattern that has plagued this region for weeks,” Deger added. “The difference with this storm will be the cold air in place, which should result in more snow in the bigger cities after multiple deluges of heavy rain.”
