NYMEX Henry Hub gas futures cross $4 mark as US market balance tightens

Prompt-month futures prices at the US Henry Hub edged back above $4 on Jan. 10 as more winter-like weather lifts heating demand to seasonal highs and a new year's slump in domestic production persists.

At mid-session, the prompt-month gas contract was up about 15-20 cents from its prior settlement to trade around $4.10/MMBtu. In the cash market, prices were up even more sharply to start the week, rising about 30 cents to $4.14/MMBtu, data from CME Group and the Intercontinental Exchange showed.

Over the past month, Henry Hub futures and cash prices have mostly traded below $4 as weak seasonal demand has met with rising production and storage levels, easing earlier concerns over winter supply.

Since the start of January, though, a tighter US supply-demand balance has reignited the market bulls.

Weather, demand

In January, population-temperatures in the US Northeast have averaged just 35 degrees Fahrenheit. In the Midwest – another key heating-demand region – temperatures have plunged to an average 18 degrees.

This month's colder weather has lifted residential-commercial gas demand to its highest yet this winter, averaging 53 Bcf/d from Jan. 1 to date. In the week ahead, heating demand is forecast to remain above the prior five-year average at nearly 49 Bcf/d, according to data from S&P Global Platts Analytics.

It in latest eight- to 14-day outlook, the US National Weather Service said that it sees a 33%-50% chance for below-normal temperatures over the short term in both the US Northeast and across most of Midwest, likely providing additional momentum for heating demand in the days ahead.

Storage, production

On the supply side, a recent drop in US gas production has also hit the market this month just as lower temperatures increase the call on gas storage.

At shale basins across the US, gas production has been hard hit this month with notable drop-offs in the Marcellus, the Permian and the Denver-Julesburg. Combined, recent declines have cut total domestic output to about 92.7 Bcf/d this month – a drop of nearly 3 Bcf/d since late December.

While early January production declines are not atypical, according to Platts Analytics, the timeline for new-year rebounds in output has varied significantly in the past, adding to uncertainty over the potential duration of the recent decline.

As demand surges and production contracts, the outlook for gas storage has also turned more bullish recently.

For the reporting week ending Jan. 7, Platts Analytics is predicting a 181 Bcf drawdown from inventory. If realized, the oversized withdrawal would cut stocks to 3.014 Tcf and narrow the surplus to 70 Bcf – down from a 96 Bcf surplus in late December, data from the US Energy Information Administration shows.

Current forecasts from Platts Analytics shows the inventory surplus continuing to narrow in the weeks ahead, falling to an estimated 35 Bcf by the reporting week ending Jan. 21.