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Pre-holiday weekend short-covering drives natural gas futures higher

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Pre-holiday weekend short-covering drives natural gas futures higher

January 2018 natural gas futures turned higher in pre-holiday weekend short covering with cold weather on tap for key heat-consuming regions. The contract moved to a $2.673/MMBtu intraday high and settled 6.9 cents higher on the session at $2.667/MMBtu.

Ahead of the Christmas holiday weekend, weather forecasts point to below-average temperatures in the major heat-consuming northeastern and central U.S. that should keep demand for natural gas for heating strong.

The National Weather Service's six- to 10-day map shows below-average temperatures blanketing nearly the entire U.S. with only portions of the Southeast and West expected to see average and above-average temperatures.

Below-average temperatures continue to grip the majority of the country in the eight- to 14-day period, with only a portion of the West and Florida expected to see average and above-average temperatures.

As cold permeates the majority of the country, demand for heat in the residential and commercial sectors should keep demand for natural gas elevated even as the country celebrates the Christmas and New Year holidays.

The U.S. Energy Information Administration reported a larger-than-anticipated 182-Bcf withdrawal from natural gas inventories for the week to Dec. 15 that was below the year-ago 200-Bcf pull but above the 125-Bcf five-year average withdrawal.

Natural gas inventories now sit at 3,444 Bcf, or 183 Bcf below the year-ago level and 84 Bcf below the five-year average storage level of 3,528 Bcf.

Rising demand is expected to result in larger withdrawals of natural gas from underground storage facilities in the weeks ahead, with the steady erosion of the total working gas supply providing upside support.

Bulls continue to struggle to hold gains, however, as longer-range weather outlooks point to moderating that should result in a return to smaller weekly withdrawals in January and February, a typical peak winter consumption period.

Additionally, the outlook for natural gas supply remains strong. Dry natural gas production grew 1% in the week to Dec. 20 compared with the previous report week, to 76.8 Bcf/d, compared with 69.1 Bcf/d during the same period a year earlier.

The natural gas rig count implies ongoing strong production as it gained one in the week to Dec. 22 to 184 and was up 55 rigs on the year, while the oil rig count held at 747, up 224 from the same week in 2016.

Trading in the day-ahead markets was revised for a four-day package to include Saturday-through-Tuesday deliveries, as offices will close for the Christmas holiday weekend. Prices were predominantly higher despite the inclusion of the low-demand weekend and holiday in the package, as cold weather is expected to support strong demand.

Prices were sharply higher at major hubs in the Northeast as pipeline constraints added to support. Algonquin Citygates jumped more than $6.25 to drive the index atop $17.30. Transco Zone 6 NY added nearly $1.00 to an index atop $3.55, while Tetco-M3 gained about $1.15 to an index better than $3.40.

Elsewhere, prices were mixed between gains and losses. Henry Hub deals were nearly 1 cent higher to an index atop $2.60, Waha slipped more than 1 cent to an index near $2.40, and Chicago gained nearly 15 cents to about $2.65. At the SoCal Border, deals were more than $1.00 lower to an index near $2.20, while PG&E Gate held relatively unchanged below $2.85.

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.