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January 2017 gas turns negative amid fundamental uncertainty

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Essential Energy Insights - September 17, 2020

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January 2017 gas turns negative amid fundamental uncertainty

Following a finish 6.6 cents higher at $3.540/MMBtu, January 2017 natural gas futures attempted gains but pulled back overnight ahead of the Thursday, Dec. 15, open, in positioning ahead of the midmorning release of the weekly storage report expected to show an impressive withdrawal from stocks. The contract moved to a $3.589/MMBtu overnight high and found a $3.511/MMBtu low, while trading last 2.3 cents lower on the session at $3.517/MMBtu.

Cold weather, which boosted demand, and a drop in production due in part to freeze-offs are expected to have combined to ramp up the pace of storage erosion when the U.S. Energy Information Administration releases its next weekly inventory data at 10:30 a.m. ET on Thursday.

Estimates for the forthcoming storage report that will cover the week ended Dec. 9 call for a stock drawdown of between 117 Bcf and 144 Bcf, with consensus formed at a 132-Bcf withdrawal. This would compare against a 79-Bcf five-year average draw and the 46-Bcf pull seen in the corresponding week in 2015.

The week's data would follow the 42-Bcf withdrawal reported for the week to Dec. 2 that took overall inventories to 3,953 Bcf, or 51 Bcf above the year-ago level and 254 Bcf above the five-year average of 3,699 Bcf.

A storage draw at consensus would trim total stocks to 3,821 Bcf, turning the year-on-year surplus to a deficit of 35 Bcf and shrinking the year-on-five-year-average overhang to 201 Bcf.

Weather forecasts, however, counter the upside momentum driven by storage expectations, as calls for milder weather across major heat-consuming regions that suggest declining demand in the weeks ahead fuel bearish sentiments in the market.

The latest National Weather Service outlook for the six- to 10-day period shows the fringes of the Northeast and Mid-Atlantic, much of the Midwest and the bulk of the Southeast gripped by above-average temperatures, while the remainder of the Eastern Seaboard, a section of the central U.S. and parts of the West are encompassed by average temperatures. Below-average temperatures are projected to be confined to portions of the West and south-central U.S.

Further out to the eight- to 14-day period, above-average temperatures are forecast to expand in scope to overtake the entire eastern half of the U.S. and an area of the Southwest. Average temperatures linger over portions of the central U.S. and West, as below-average temperatures shrink to be contained to a section of the West.

Diminished demand amid milder weather over key heating regions should limit the amount of natural gas drawn from storage and allow for a pullback in the rate of weekly withdrawals in the subsequent storage reports.

In cash trading, price action for natural gas moved Wednesday for Thursday flow was choppy amid diverging demand requirements.

Looking at the major delivery locations, a near 10-cent decline took benchmark Henry Hub spot gas pricing to an index at $3.553/MMBtu, as an almost 6-cent reduction steered PG&E Gate next-day gas price activity to an average at $3.648/MMBtu and a near 1-cent slump nudged Chicago day-ahead gas price action to an index at $3.776/MMBtu. Conversely, an impressive almost $13.98 gain drove Transco Zone 6 NY hub pricing to an average at $18.333/MMBtu.

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Regionally, Gulf Coast cash gas price activity added roughly 7 cents on the session to average at $3.559/MMBtu, as West Coast day-ahead gas pricing deflated by about 8 cents to an index at $3.369/MMBtu. Midwest spot gas prices eased by almost 4 cents on average to an index at $3.547/MMBtu, as Northeast next-day gas price action notched a near $2.26 increase in deals averaging at $7.343/MMBtu.

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Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.