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February natural gas adds to gains as market looks to expiration

February natural gas futures moved higher in short covering Wednesday, Jan. 25, as the contact nears expiration at the close of business Friday, Jan. 27. The contract moved from a $3.255/MMBtu low to a $3.353/MMBtu high and finished the day 5.3 cents higher at $3.332/MMBtu.

Cold weather in major heat-consuming regions in the midrange outlook will support demand, providing upside price support, and storage is expected to have been drawn down in the week to Jan. 20. Inventory erosion is expected to have slowed, however, limiting the day's gains.

In the latest weather outlooks, below-average temperatures in the Northeast and average temperatures in the Midwest imply some demand for heating that should keep natural gas inventories eroding at a relatively healthy clip in the weeks ahead.

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But analysts and traders are already marking the days left in the peak of the winter heating season, and anticipating that the most significant cold, and thus the largest storage pulls, have already been booked.

In fact, natural gas consumption data in the U.S. Energy information Administration'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%.

Natural gas inventories are expected to have eroded in the week to Jan. 20, with analysts and traders looking forward to the 10:30 a.m. ET release of the latest EIA figures. A survey of market participants shows the expectation for pulls spanning 111 Bcf to 135 Bcf, with consensus formed at a 121-Bcf withdrawal.

Although still an impressive triple-digit withdrawal, a pull at consensus would be a marked step down from the 243-Bcf drawdown reported for the week to Jan. 13 that brought the total working gas supply to 2,917 Bcf, with deficits to the year-ago level and five-year average pegged at 431 Bcf and 77 Bcf, respectively.

A pull at the consensus for this week's data would cut the total working gas supply to 2,796 Bcf. Compared against a 176-Bcf five-year-average drawdown and the 202-Bcf pull reported for the same week in 2016, the deficit to the five-year average would be trimmed to 22 Bcf while the deficit to the year-ago level would slip to 350 Bcf.

Day-ahead market values for natural gas delivered to major hubs across the country on Thursday were mostly higher driven by demand outlooks.

A better-than-5-cent gain at Transco Zone 6 NY drove the average close to $3.20, while Tetco-M3 trades were about 1 cent higher and averaged atop $3.10. Henry Hub deals were about 1 cent higher on average to an index near $3.25. Conversely, Waha and Chicago each traded about 1 cent lower, with Chicago finding an index near $3.20 and Waha averaging atop $3.10. SoCal Border trades followed the downside, edging back about 1 cent to an index below $3.50, while PG&E Gate followed the upside, with a gain of about 5 cents to an index near $3.65.

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.