January 2017 natural gas shifted between gains and losses Tuesday, Dec. 13, in an ongoing search for direction as participants consider weather and demand prospects and a shrinking natural gas inventory. The contract traded from $3.456/MMBtu to $3.577/MMBtu and at the settle had extended another 3.3 cents lower to finish at $3.474/MMBtu.
Downside is limited as the peak of the winter heating season is promising some significant cold in major heat-consuming markets.
The six- to 10-day weather forecast from the National Oceanic and Atmospheric Administration shows below-average temperatures engulfing the bulk of the U.S. including the major heat-consuming Northeast and Midwest markets.
As cold weather engulfs large portions of the country, production cuts due to freeze offs will butt up against strengthening demand to drive down natural gas inventories.
There are reports of freeze-offs in the Northwest that have had a "big effect on Canadian and US production since the beginning of the month (December)," analysts with GPS Energy said in a note.
Overall production across the Lower 48 is down 0.6 Bcf and Canadian production is down 1 Bcf, largely caused by freeze offs occurring on the well heads, the analysts said.
As the cold weather in the Northwest drives down production, cold could drive freeze-offs in the major producing and consuming regions of the Northeast as well, driving significant impact on the total natural gas supply.
Natural gas inventories are expected to begin drawing sharply lower with the upcoming report due from the U.S. Energy Information Administration at 10:30 a.m. ET on Thursday. The data will cover the week to Dec. 9.
Outlooks for the report cover a range of withdrawals from the 120s Bcf to as much as the 140s Bcf. Compared against the 79-Bcf five-year average withdrawal and the 46-Bcf pull reported in the corresponding week in 2015, the storage overhangs to the year-ago level and five-year average would be significantly reduced.
Total working gas supply sits at 3,953 Bcf. A withdrawal within the range of expectations would substantially reduce storage overhangs that are currently 51 Bcf above the year-ago level and 254 Bcf above the five-year average, left after the 42-Bcf withdrawal reported for the week to Dec. 2.
Market participants are expecting the natural gas storage overhangs to be eliminated by the end of December.
The downside in natural gas futures was kept alive by the outlook for a change to above-average and average temperatures in the major heating regions in the eight- to 14-day period that could briefly halt the trend toward larger storage pulls.
In day-ahead trade, prices were higher with weather-related demand support.
Transco Zone 6 NY added nearly 80 cents, driving an index atop $4.40, and Tetco-M3 traded nearly 40 cents higher to an index near $3.75. Henry Hub traded about 5 cents higher to an index near $3.60, Waha added a similar amount to an index near $3.45 and Chicago gained about 15 cents to an index near $3.80. At the SoCal Border, trades were less than 1 cent higher to an index near $3.60 and PG&E Gate, with a similar gain, found an index atop $3.70.
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