Weekly natural gas cash prices opened 2024 riding a wave of winter weather momentum, gaining substantial ground alongside the futures market.
NGI’s Weekly Spot Gas National Avg. for the Jan. 2-5 trading period jumped 82.5 cents to $2.970.
Conditions were defined by colder air in the Midwest to start January and expectations for a significant weekend snowstorm in the East. Forecasts also called for a widespread freeze in the week ahead – and into the following week -- that could galvanize strong national heating demand.
As the trading week closed, strong gainers spanned the Lower 48. SoCal Border Avg. spiked $1.900 to $4.525, while Northwest Sumas surged $2.370 to $4.330 and Algonquin Citygate near Boston climbed $3.145 to $5.060.
The February Nymex contract rallied throughout the week as well. It settled at $2.893/MMBtu to close trading on Friday, up 7.2 cents on the day and up 15% from the prior week’s finish.
“Winter is starting to show up and make an impact” on prices, StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI. “Now it’s just a matter of Mother Nature coming through further into January.”
Forecasts did indeed call for more frigid air in the days to come. National Weather Service data pointed to single digit lows across swaths of the Mountain West, Plains, Midwest and the Northeast during the trading week ahead – and into the following week.
The resulting heating demand should help to soak up hefty natural gas supplies that were amassed amid robust production and mild December weather, said EBW Analytics Group analyst Eli Rubin. Output reached record levels above 106 Bcf/d late in 2023 and held close to that threshold during the past week.
“While the production leap higher into the early heating season continues to cast a bearish long-term shadow,” Rubin said, “the near-term outlook into mid-winter may be showing signs of ebbing.”
Further, he added, “the risk of growing freeze-offs into mid-January amid encroaching cold” could curb production in the Rockies, North Dakota and parts of the Midcontinent region this month.
“While unlikely to be a market-shattering event akin to Winter Storms Uri or Elliott” of 2021 and 2022, respectively, “freeze-offs and greater storage withdrawals could prod Nymex gas higher.”
Storage Scenario
Steep storage draws have yet to materialize, however, given the robust production and benign weather that defined the start of winter.
The U.S. Energy Information Administration (EIA) on Thursday posted a pull of 14 Bcf natural gas 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. NGI modeled a decline of 40 Bcf for the report. 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.
RBN Energy LLC’s Rusty Braziel, executive chairman, cautioned that, while many analysts expect at least a moderate pullback this year, natural gas production is widely projected to hold at historically strong levels in 2024 in anticipation of several new LNG facilities coming online. The first could open late this year, with several more to follow in ensuing years.
Beyond the inevitable bump in consumption in the middle of winter, however, mid-range domestic demand “is going nowhere,” Braziel said, leaving the specter of supply/demand imbalance heading toward the spring shoulder season.
For the first week of January, though, traders looked past anemic storage data and fragile fundamentals and focused instead on the expected blast of winter.
Analysts also noted strength in liquefied natural gas volumes. LNG held at levels above 14 Bcf/d through the past week – near current capacity – as European countries sought heating fuel as they, too, head into the heart of winter.
The combination of healthy export volumes and frigid near-term weather could lead to more significant storage declines in January as well as momentum for both futures and cash prices.
“It looks like cold is going to come through” for bulls over the next two weeks, Saal said. “We’ll have to see if it lasts beyond that.”
Early estimates reported to Reuters for the EIA storage report covering the week ended Jan. 5 ranged from withdrawals of 65 Bcf to 159 Bcf, with an average decrease of 123 Bcf. That compares with a five-year average pull of 87 Bcf.
Friday Cash Prices
Spot gas prices gave up ground on Friday for the first time this year, led lower by declines in Texas and the Midwest that followed solid gains earlier in the week. NGI’s Spot Gas National Avg. lost 18.5 cents on the day to $3.095.
In West Texas, El Paso Permian dropped 95.5 cents day/day to average $1.500, and Waha fell 89.5 cents to $1.445.
Katy in East Texas lost 29.0 cents to $2.260.
Chicago Citygate shed 13.0 cents to $2.445, while elsewhere in the Midwest, NGPL MidAmerican declined 16.5 cents to $2.410.
Despite the pullback ahead of the weekend – a common occurrence, given less commercial demand – the near-term weather outlook could drive solid demand in the days ahead, according to AccuWeather forecasts. A major snowstorm was expected to blanket the Northeast over the first weekend of January, followed by roughly two weeks of Arctic chills and more snow across vast stretches of the country.
“Just days after a storm drops snow and snarls travel over the southern High Plains and in the Northeast, a second major cross-country storm will threaten heavy snow in the central United States along a 1,000-mile swath from northeastern New Mexico to northern Michigan” in the week ahead, said AccuWeather’s Alex Sosnowski, senior meteorologist.
This could impact major markets from Chicago to New York City.
“Large winter-style storms were scarce during the final weeks of 2023, but the new year has breathed new life into the weather, with one storm after another lining up over the Pacific,” Sosnowski said. “Each will track across the rugged terrain of the western U.S. and emerge on the Plains, where they can not only tap moisture from the Gulf of Mexico but also pull down cold air from Canada.
“More storms packing snow, rain and severe weather will likely follow for the central states as the month progresses,” he added. “As Arctic air invades the Rockies and Plains, warmth may surge in the East. The extreme temperature contrast could make some storms even more dynamic and disruptive.”
