March natural gas futures failed to sustain early gains amid fundamental pressures coming from weather and natural gas inventories. The contract topped out at $2.880/MMBtu in early Monday, Feb. 5, trade and finished 9.9 cents lower on the session at $2.747/MMBtu.
Lack of fundamental support for natural gas stems from weather outlooks that support the expectation for declining demand for heating and thus smaller withdrawals from natural gas inventories.
Natural gas demand faltered to end January after a volatile month of weather that drove record storage pulls as demand surged.
Milder weather limited natural gas inventory erosion during the review week to Jan. 26, as the EIA weekly storage report outlined a 99-Bcf pull from stocks that came in below consensus estimates and well below the 160-Bcf five-year average withdrawal.
Generally warmer weather in the review week ended Jan. 31, much of which will be included in the storage report covering the week to Feb. 2, held natural gas consumption in the residential and commercial sectors to unchanged at an average 37.8 Bcf/d, while power-sector consumption tumbled 8% week on week and industrial-sector consumption decreased 1%.
The resulting decline in total U.S. natural gas consumption was 2% compared with the previous week, while for the same period, dry production was up 1%.
The consumption and production trends are expected to have combined to result in a storage withdrawal that once again trails historical averages including the 142-Bcf year-ago pull and the 151-Bcf five-year-average withdrawal.
Early estimates suggest a pull from the upper 110s Bcf to the low 120s Bcf for the week to Feb. 2.
Weather outlooks for the midrange support additional demand erosion, with warmer weather in the major heat-consuming Northeast seen limiting the demand-side support from cooler conditions in the Midwest.
In the six- to 10-day weather outlook from the National Oceanic and Atmospheric Administration, above-average temperatures spread across the East Coast and expand into portions of the Gulf while holding a large area of the West. Below-average temperatures span the majority of the country's midsection, flanked by average temperatures forecast for a portion of the East, west-central, north-central and Northwest.
For the eight- to 14-day period, the NOAA sees above-average temperatures spanning the eastern quarter of the country, gripping a small portion of the north-central U.S. and holding the majority of the West. Save for a small portion of Texas, the remainder of the country should see average temperatures through the period.
The anticipation of continued moderating weather and a slower rate of storage erosion heading toward spring is capping upside support for values.
Following the release of a 288-Bcf storage pull for the week to Jan. 19 that tied the second-highest net withdrawal ever reported, the EIA said that if withdrawals from storage match the five-year average for the remainder of the heating season to March 31, working gas stocks will total 1,216 Bcf, or 29% lower than the five-year average. Withdrawals that are below the five-year average suggest, therefore, that inventories will end the withdrawal season at a healthier level.
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