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February gas in search of direction ahead of week's opener

After settling 16.4 cents lower at $3.204/MMBtu ahead of the weekend, February gas futures moved between gains and losses in overnight trading leading up to the Monday, Jan. 23, open, as receding cold weather and expanding warmth in forecasts spell declining demand and a possible pullback in the rate of weekly storage draws. The contract was traded between $3.157/MMBtu and $3.235/MMBtu and was last seen 0.9 cent higher on the session at $3.213/MMBtu.

The latest National Weather Service outlooks show below-average temperatures holding over the lower tier of the Mid-Atlantic, Southeast, much of the Gulf Coast and a majority of the West in the upcoming six- to 10-day period, before shrinking in scope to be contained to the fringes of the Southeast and a smaller area of the West further out to the eight- to 14-day period.

Above-average temperatures settle over the upper portion of the Northeast, most of the Midwest and a few areas of the West in the shorter-range forecast, but overtake nearly the entire central U.S. and a large section of the Southwest in the longer-range projection.

Milder weather in store for the major heat-consuming Midwest region should keep a lid on natural gas demand for heating in the weeks ahead, which could allow for a renewed slowdown in the pace of inventory erosion.

Working gas stocks notched the largest draw of the season to date during the week ended Jan. 13, for which the U.S. Energy Information Administration outlined a 243-Bcf withdrawal that outperformed consensus estimates and historical averages.

The reported storage pull was greater than the average anticipated 236-Bcf drawdown, as well as the 175-Bcf withdrawal in the same week in 2016 and the 170-Bcf five-year average draw. It took overall inventories to 2,917 Bcf, or 431 Bcf below the year-ago level and 77 Bcf below the five-year average of 2,994 Bcf.

Already, supply/demand data from the EIA supports a reduction in the rate of weekly draws in the forthcoming storage report due out Thursday, Jan. 26, that will cover the week to Jan. 20.

In its latest "Natural Gas Weekly Update" for the review week to Jan. 18, much of which will be reflected in the upcoming storage report, the EIA said total U.S. gas consumption fell 22% compared to the previous report week, amid diminished demand across all major consuming sectors absent frigid temperatures observed a week ago. This occurred as supply remained flat week on the week, buoyed by a 1% gain in dry production.

Lackluster demand would limit withdrawals from the existing natural gas supply and allow more natural gas production to be diverted to underground storage facilities, feeding the potential for total stocks to remain more than adequate to meet demand through the remainder of the winter heating season and into the next shoulder season.

In cash trading, the price of natural gas booked Jan. 20 for Saturday-through-Monday flow was mixed but mostly lower, as milder weather and the typical weekend inclusion in the revised offering fueled expectations of weaker demand.

Looking at the major hubs, a near 5-cent gain drove Chicago spot gas price action to an index at $3.193/MMBtu, as a better-than-1-cent uptick nudged PG&E Gate next-day gas pricing to an average at $3.561/MMBtu. Conversely, a 13-cent decline steered Transco Zone 6 NY hub activity to an index at $3.000/MMBtu, as a 2-cent slump brought benchmark Henry Hub day-ahead gas pricing to an average at $3.226/MMBtu.

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Regional averages were biased to the downside overall. Losses on either side of 1 cent on average nudged cash gas prices to indexes at $3.079/MMBtu in the Midwest, $2.986/MMBtu on the West Coast and $3.096/MMBtu on the Gulf Coast, as a near 10-cent reduction took Northeast spot gas pricing to an index at $3.143/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.