Wintry weather extends US gas storage withdrawal season, lifting NYMEX futures

Frigid weather across the US Midwest and the Northeast this weekend and forecasts calling for usually cool temperatures heading into early April are promising a rocky start to the gas storage injection season, adding renewed momentum to an aging rally in the NYMEX Henry Hub futures market.

From March 26-March 28, temperatures across the Midwest are forecast to drop below freezing with cities like Chicago, Detroit and Cleveland expected to see lows around 20 degrees Fahrenheit.

As the winter-like conditions move east, much of the Northeastern Seaboard stretching from Washington to Boston is expected to see similar weather by the evening of March 27.

Moving into early April, the US National Weather Service expects a 40%-50% chance for cooler-than-normal weather in its eight-to-14-day forecast, likely impacting much of the midcontinent stretching from the desert Southwest to the Upper Midwest. A separate forecast published by S&P Global Commodity Insights shows population-weighted temperatures for the Midwest in particular averaging just 40 degrees F in the first week of April.

As wintry weather lingers, the US gas storage outlook is now on shifting ground, raising alarm in the futures and forwards markets over a potentially extended gas storage withdrawal season that could fuel increased injection demand during the upcoming summer months.

Gas futures, supply

In March 25 trading, NYMEX gas futures edged into the upper $5.50s/MMBtu with the prompt-month contract climbing to its highest since late January when prices topped $6/MMBtu, data from CME group showed.

The futures rally extended well beyond the prompt with peak-summer gas prices reaching into the low-$5.70s/MMBtu at their high. For the winter 2022-2023 futures contracts, prices briefly approached $6.

The continued rally in NYMEX gas futures – which comes at a time of year when prices typically trough –has likely been spurred in no small part by the emerging risk to US gas storage.

For the week ending April 1, S&P Global analysts are now predicting a 17 Bcf withdrawal from storage, which compares with a week-ago estimate that called for a 26 Bcf injection during the week. For the week ending April 8, the forecast has also shifted with a meager 15 Bcf injection now expected.

In its latest report, the US Energy Information Administration estimated US gas storage at 1.389 Tcf for the week ending March 18 – more than 290 Bcf below the prior five-year average. Assuming current storage projections are on target, US inventory would climb little more than 40 Bcf by the week ending April 8, keeping the storage deficit to around 270 Bcf.

Potentially exacerbating this season's storage deficit is recent weakness in US gas production. In March, domestic output has just under 93.7 Bcf/d – about 2 Bcf/d below its December 2021 average, S&P Global data shows.