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February natural gas adds to gains with modest weather support

February natural gas extended gains Tuesday, Jan. 24, on the back of revised weather outlooks that offer some demand support in the eight- to 14-day period. Overall gains were modest and capped by the expectation of a pullback in the rate of storage withdrawals in this week's inventory report and with the likelihood that the largest storage withdrawals have already been booked. The contract climbed to a $3.350/MMBtu high and settled 3.6 cents higher on the day at $3.279/MMBtu.

Weather forecasts for the six- to 10-day and eight- to 14-day periods offered modest upside support as average and below-average temperatures work their way across major portions of the country. In the early outlook, above-average temperatures manage to maintain a grip on portions of the Northeast and Midwest, helping to limit heating demand, but in the later projection, average temperatures engulfing the majority of the Northeast supports the expectation of rising heating demand and a possible uptick in the amount of natural gas pulled from inventories.

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SNL Image

For the upcoming storage report due out at 10:30 a.m. ET on Thursday, Jan. 26, and covering the week to Jan. 20, analysts and traders expect a withdrawal spanning the 110s Bcf to the upper 120s Bcf, according to an early survey. A pull within the range of expectations would be a significant step down from the prior week's withdrawal.

In the previous report that covered the week to Jan. 13, the U.S. Energy Information Administration reported that 243 Bcf was withdrawn from storage facilities in the Lower 48. The drawdown came despite a week that saw 6.0% fewer heating degree days compared to the same week last year, and 10.6% fewer than normal for the week.

Natural gas consumption data in the EIA's latest "Natural Gas Weekly Update" shows that for the review week to Jan. 18, total U.S. consumption of natural gas fell by 22% compared with the previous report week, with power burn down 22% week over week, industrial-sector consumption 7% lower and residential- and commercial-sector consumption off 29%. Additionally, natural gas exports to Mexico decreased by 4%.

While constantly changing weather provides the opportunity for shifts in demand, increasing market volatility as participants buy and sell natural gas based in large part on weather-driven demand expectations, upside is expected to be limited as participants expect subsequent withdrawals to keep the total working gas supply near the five-year average.

Stocks sit at 2,917 Bcf, with deficits to the year-ago level and five-year average pegged at 431 Bcf and 77 Bcf, respectively.

The end-of-season natural gas inventory is expected to be adequate leading into the next injection period.

Day-ahead trades were higher at most major delivery locations as weather and demand supported an uptick in value.

Gains were relatively modest in the Northeast as Transco Zone 6 NY and Tetco-M3 each added less than 4 cents on average to drive indexes to around $3.10 at both locations. Henry Hub deals advanced about 10 cents to an index near $3.25, Waha gained nearly 15 cents to an index atop $3.10 and Chicago deals were about 10 cents higher and averaged near $3.25. At the SoCal Border, trades were more than 10 cents higher on average to an index near $3.05, while PG&E Gate added nearly 10 cents to prior-day values to an index atop $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 and coal index prices, as well as forwards and futures, visit our Commodities Pages.