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April gas futures retreat overnight amid impending weather changes

After extending 0.8 cent higher in the prior session to close at $2.786/MMBtu, NYMEX April natural gas futures dipped lower overnight ahead of the Wednesday, March 14, open, as ongoing support from colder weather outlooks ran up against selling pressure as the market considers the approaching spring. At 7:20 a.m. ET, the contract was 5.1 cents lower at $2.735/MMBtu.

"I think that the back and forth action will continue to be a mainstay of this market, as we are getting winter storms in the United States, but at the same time we are heading towards spring," FX Empire analyst Christopher Lewis said in a note.

Revised National Weather Service outlooks for both the six- to 10-day and eight- to 14-day periods coax the upside as they show below-average temperatures enveloping the bulk of the country, confining the scope of average to above-average temperatures to the fringes of the Southeast, much of the Gulf Coast and a few areas of the southern Rockies.

"The cold temperatures currently projected for the second half of March will increase Nat Gas heating related demand to an above average level for this time of the year," Energy Management Institute Principal Dominick Chirichella said in a note to clients.

Stubborn cold is already seen to have bolstered demand to start March, feeding expectations for a return to a rapid pace of storage erosion following a recent slowdown when the next weekly storage data is released Thursday, March 15.

The U.S. Energy Information Administration's latest "Natural Gas Weekly Update" for the week ended March 7 reflects a 2% week-over-week gain in total U.S. gas consumption led by a 10% increase in residential/commercial-sector demand, as weather throughout much of the country turned colder.

The uptick in demand is expected to drive storage withdrawals back to the low 100s Bcf for the forthcoming storage report that will cover the week to March 9. That would exceed both the 97-Bcf five-year-average drawdown and a 55-Bcf year-ago pull.

For the week ended March 2, the EIA reported a 57-Bcf withdrawal that was equal to the prior-year drawdown, but well below the 129-Bcf five-year-average draw. It left total working gas stocks at 1,625 Bcf, or 680 Bcf less than last year at this time and 300 Bcf below the five-year average of 1,925 Bcf.

The EIA sees working gas stocks reaching 1,402 Bcf at the traditional close of the withdrawal season on March 31, or 18% lower than the five-year average, assuming storage draws match the five-year average for the remainder of the season.

"Inventories of natural gas remain below the 5-year average but above the 5-year average range," FX Empire analyst David Becker said.

Lewis said the oversupply will outweigh any bullish pressure, and that bullish pressure is a short-term phenomenon more than anything else. "In general, this is a market that I think continues to see a lot of issues, as higher prices will attract a lot of attention from suppliers in the United States who are more than willing to drill even further," he said.

Price action for next-day natural gas was choppy Tuesday, in line with varied demand outlooks.

Looking at the key hubs, a near 22-cent increase drove Transco Zone 6 NY spot gas price activity to an index at $3.344/MMBtu, as a roughly 7-cent gain brought PG&E Gate day-ahead gas pricing to an average at $2.960/MMBtu. By contrast, an almost 2-cent reduction steered benchmark Henry Hub cash gas price action to an average at $2.764/MMBtu, while an approximately 1-cent slump nudged Chicago hub pricing to an index at $2.631/MMBtu.

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On a regional basis, Northeast cash gas prices rose about 16 cents on average to an index at $3.133/MMBtu, as West Coast next-day gas price activity posted a 6-cent uptick in deals averaging at $2.305/MMBtu. Day-ahead gas pricing on the Gulf Coast was near unchanged day on day at an index at $2.727/MMBtu, while spot gas price action in the Midwest was roughly 4 cents weaker at an average at $2.490/MMBtu.

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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 and natural gas index prices, as well as forwards and futures, visit our Commodities pages.