March natural gas futures began its run as the lead contract on the defensive with little in the way of fundamental support. Weather forecasts failed to inspire gains as even with average and below-average weather forecast for major consuming regions, shallow demand is anticipated and natural gas inventories are expected to be drawn lower at a slowing pace. The contract worked its way to a $3.216/MMBtu low and settled the Monday, Jan. 30, trading session 12.6 cents lower at $3.232/MMBtu.
The latest revisions to weather forecasts from the National Oceanic and Atmospheric Administration show below average temperatures gripping the Northeast, Mid-Atlantic, portions of the Midwest, north-central U.S. and Northwest in the six- to 10-day period. The below-average readings retreat to include smaller portions of the key consuming regions in the eight- to 14-day outlook.
Stifled by milder weather across the majority of the country, demand should be shallow enough to trim the amount of natural gas being pulled from storage on a weekly basis through the balance of the winter heating season.
Natural gas inventories took a sharp step back from large withdrawals following the 243-Bcf withdrawal in the week to Jan. 13. The U.S. Energy Information Administration reported a 119-Bcf withdrawal from stocks for the week to Jan. 20.
The withdrawal was less than the market consensus ahead of the report's release that called for a 121-Bcf drawdown from stocks, and was below both 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.
Market participants expect a further slowdown in storage withdrawals when the EIA releases its next report at 10:30 a.m. ET on Thursday, Feb. 2, that will cover the week to Jan. 27, as consumption data from the EIA in its latest Natural Gas Weekly Update, outlines an 8% decline in demand in the week to Jan. 25 compared with the previous week.
The total drop in consumption was supported in part by a 2% decline in power burn week on week and a 3% decline in industrial sector consumption.
The EIA said consumption in the residential and commercial sectors declined by 15% to average 31.6 Bcf/d, 36% below the same week in 2016. All other non-export demand was also below the same week last year. Natural gas exports to Mexico increased 4% week over week.
As weather warms and demand for heating retreats, natural gas inventory erosion is expected to slow, and analysts and traders expect the end- of-season supply to remain adequate leading into the next injection period.
Spot markets were mostly lower in deals done for Tuesday, Jan. 31, pressured by weather-related demand decline and natural gas futures losses.
Transco Zone 6 NY traded nearly 20 cents lower to an index below $3.35, Tetco-M3 traded more than 20 cents lower to an index near $3.05, benchmark Henry Hub traded about 10 cents lower to an index near $3.20, Waha slipped about 10 cents to an index around $3.00, and Chicago shed about 10 cents to an index atop $3.10. At the SoCal Border a loss of about 10 cents brought the index to around $3.10, while PG&E Gate traded more than 5 cents lower to an index near $3.55.
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