January 2017 natural gas futures extended losses in the week's closing session Friday, Dec. 16. Participants continue to look to weather for direction, and after the current spate of cold, outlooks suggest milder conditions, lower demand and little support for gains. Sinking to a $3.343/MMBtu low, the front-month contract settled the session 1.9 cents lower on the day at $3.415/MMBtu.
Above-average temperatures will engulf the eastern half of the U.S. in the six- to 10-day period and expand to include portions of the south-central U.S. in the eight- to 14-day outlook. These conditions should drive limited heating demand and reverse the brief run-up in natural gas storage erosion after what is expected to be another large withdrawal for the current week to Dec. 16.
An early survey of traders and analysts shows the expectation of a storage withdrawal spanning 177 Bcf to 204 Bcf for the week ended Dec. 16. The pull will compare against a 101-Bcf five-year average withdrawal and the modest 33-Bcf withdrawal reported during the corresponding week in 2015, and will come on the heels of the 147-Bcf pull reported for the week to Dec. 9.
The 147-Bcf withdrawal from inventories was the first triple-digit pull of the season and brought the total working gas supply to 3,806 Bcf, turning the year-on-year surplus to a deficit of 50 Bcf and shrinking the year-on-five-year average storage surplus to 186 Bcf.
The pull was in large part the result of a jump in demand, as the U.S. Energy Information Administration reported total U.S. consumption rose by 10% compared with the previous report week, with power burn up 8% week over week, and consumption in the residential and commercial sectors 17% higher. Industrial-sector consumption remained flat, and natural gas exports to Mexico decreased 6%.
Beyond the recent cold, however, mid-range and longer range outlooks suggest the sharp increase in demand will reverse and less natural gas storage will be required to meet the remaining load requirements.
Longer range, the January through March three-month outlook from the NOAA, shows above-average temperatures spanning the eastern quarter of the U.S. and spreading across the lower tier of the country.
While participants have of late been revising lower their end-of-season outlooks on the anticipation that storage withdrawals would continue exceeding historical averages and rapidly eat away at the natural gas supply, the latest weather outlooks are quelling some of the end-of-season supply worries.
Spot market prices were mixed for a second session as traders moved a three-day product that was either bolstered or pressured by weather-related and weekend demand outlooks.
Still correcting from sharp gains earlier in the week, Northeast hub values softened as the Saturday-through-Monday product tumbled nearly $3.60 on the day to an index near $4.25, while Tetco-M3 traded about 65 cents lower to an index below $3.40. Henry Hub traded lower as well, sinking nearly 10 cents to an index near $3.45.
Prices were supported at the Waha and Chicago hubs amid strong demand projections despite the weekend-day inclusion. Trades were about 25 cents higher at Waha to an index atop $3.65, while Chicago added a similar amount to an index near $3.90. At the SoCal Border, prices were about 20 cents higher to an index atop $3.75, and PG&E Gate trades were a modest less than 1 cent higher to an index near $3.70.
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