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January 2017 natural gas slips lower ahead of expiration

After extending its rally to a finish 9.9 cents higher at $3.761/MMBtu in the opening session of the post-Christmas holiday workweek, January 2017 natural gas futures turned lower overnight ahead of the Wednesday, Dec. 28, open, in profit-taking ahead of expiration at the close of business. Sinking to a $3.664/MMBtu overnight low, the contract was last seen 4.0 cents lower on the session, at $3.721/MMBtu.

The market may be considering the recent rally overdone amid forecasts that still offer a good bit of mild weather in the near-term, which could work toward limiting storage erosion.

The six- to 10-day weather map from the National Oceanic and Atmospheric Administration shows above-average temperatures blanketing the eastern third of the country. Extending south from the Northeast, the mild conditions engulf the Mid-Atlantic and the Southeast, and move into portions of the Midwest and south-central regions. A small band of average temperatures in the central U.S. separates the above-average temperatures from a wider area of below-average temperatures that engulf the balance of the country.

Limiting losses, the below-average temperatures expand to engulf nearly the entire U.S. in the eight- to 14-day period. Small portions of the Northeast, Southeast and the tips of Louisiana and Texas will see average temperatures, while a small portion of the Southeast will experience above-average temperatures.

Cold weather remains a catalyst for additional gains going forward, even as February 2017 natural gas futures followed the expiring January 2017 contract lower overnight. Setting up to take the lead position, February futures were last 3.7 cents lower on the day, at $3.728/MMBtu.

Demand for heating should climb on the back of the colder air and should drive large pulls from the natural gas supply that had built to a new record in an injection season that extended beyond its titular end. Natural gas inventories began the withdrawal season with 4,047 Bcf of natural gas in storage facilities across the Lower 48.

After a small withdrawal in the week to Nov. 18, the working gas supply has been falling at a rapid pace, culminating with the surprisingly large 209-Bcf withdrawal reported for the week to Dec. 16.

That pull took the total working gas inventory to 3,597 Bcf, or 226 Bcf below the same week in 2015 and 78 Bcf above the five-year average of 3,519 Bcf.

Analysts and traders expect the upcoming inventory report that will cover the week to Dec. 23 to show a withdrawal ranging from the upper 190s Bcf to the low 210s Bcf. A withdrawal within the range of expectations will erase the year-on-five-year-average storage overhang, as the pull will compare against an 80-Bcf five-year-average draw and the 50-Bcf withdrawal reported for the corresponding week in 2015.

Day-ahead markets were responding to the current cold weather and the recent gains in January 2017 natural gas, driving higher in the Tuesday session for Wednesday gas flow.

At the major markets, Henry Hub averaged $3.704/MMBtu, up 10.8 cents on the day, while Transco Zone 6 NY climbed 32.4 cents to an index at $3.574/MMBtu. In Chicago, spot gas averaged $3.566/MMBtu, up a relatively small 3.3 cents, while in the West, PG&E Gate averaged $3.874/MMBtu, up just 1.8 cents.

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On a regional basis, Gulf Coast spot gas averaged $3.499/MMBtu, up 2.8 cents on the day, while the Northeast market added 25.9 cents to an average of $4.140/MMBtu. Spot gas deals in the Midcontinent averaged $3.523/MMBtu, up 9.7 cents, while West spot trading was up 7.2 cents at $3.436/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, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.