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February natural gas ticks higher into expiration

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February natural gas ticks higher into expiration

February natural gas futures turned positive as the contract rolled off the board at the close of business Friday, Jan. 27. The front-month spent the bulk of its final day in the lead position in negative territory, finding a low at $3.245/MMBtu, but late short-covering on weather outlooks that remain moderately supportive drove the contract to a high of $3.418/MMBtu and a settle up 0.9 cent at $3.391/MMBtu.

March natural gas maintained its negative bias sinking to a $3.285/MMBtu low and settling the session 3.9 cents lower on the day at $3.558/MMBtu.

Weather continues as the main market motivator, and forecasts that show below-average temperatures gripping the major heat consuming Northeast and Midwest regions through early February helped drive the expiring contract higher as traders worked to cover positions.

SNL Image

SNL Image

Meanwhile, turning attention to March, higher low temperatures should limit demand and keep the natural gas supply adequate to end the month and the titular withdrawal season, leading into the next period of injections. The total working gas supply continues to recede, as evidenced by the latest storage report from the U.S. Energy Information Administration that showed 119-Bcf was pulled from stocks for the week to Jan. 20.

That pull, however, represents a sharp step lower in the rate of storage withdrawals coming on the heels of a 243-Bcf drawdown reported for the week to Jan. 13. The withdrawal also was a downside miss against consensus expectations that called for a pull of 121 Bcf, and was well below the 202-Bcf withdrawal reported for the same week in 2016 and the five-year average withdrawal of 176 Bcf.

The drawdown brought total U.S. working gas supply to 2,798 Bcf, or 348 Bcf below the year-ago level and 20 Bcf below the five-year average storage level of 2,818 Bcf.

Natural gas inventories are expected to continue to erode through the end of injection season but at a slower pace. Early projections for the upcoming storage report covering the current week to Jan. 27 suggest pulls in the lower 90s Bcf.

"We continue to think storage will remain close to five-year average levels over the next few weeks, which may translate into ongoing sideways, choppy price action," Citi Futures analyst Tim Evans said.

The EIA sees inventories at 1,745 Bcf at the end of March, or 3.3% below the five-year average for that time of year.

Traders moved a three-day product in day-ahead trade Friday, Jan. 27 that saw prices deflate at most hubs with the inclusion of the low demand weekend days in the offering. Weather supported some gains in the Northeast, the only region to buck the wider trend.

Transco Zone 6 NY traded more than 15 cents lower to an index topping $3.50, while Tectco-M3 followed the wider trend, slipping about 5 cents to an index nearing $3.25. Henry Hub traded down more than 10 cents to an index below $3.30, Waha trades were nearly 20 cents lower to an index around $3.10 and Chicago shed more than 10 cents to an index near $3.20. At the SoCal Border, deals slipped about 25 cents to an index near $3.20 and PG&E Gate fell nearly 15 cents to an index nearing $3.60.

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, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.