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January 2017 gas futures search for direction amid indecisive fundamentals

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January 2017 gas futures search for direction amid indecisive fundamentals

Following a 3.3-cent retreat Tuesday to a finish at $3.474/MMBtu, January 2017 gas extended its retreat in choppy overnight trade ahead of the Wednesday, Dec. 14, open, as mixed weather projections drive varied implications for demand and the pace of storage erosion. The contract attempted gains, posting a $3.484/MMBtu overnight high, but was trading last 1.9 cents lower at $3.455/MMBtu.

Updated National Weather Service forecast maps show below-average temperatures gripping the bulk of the country in the upcoming six- to 10-day period, but significantly shrinking in scope to be contained to portions of the West further out to the eight- to 14-day period. Above-average temperatures called for only in a section of the Southeast in the shorter-range period expand to overtake the entire East, a majority of the central U.S. and a small patch of the Southwest in the longer-range period, as average temperatures settle elsewhere in the country.

Cold weather to start December and additional cold anticipated in the near-term spell increased heating demand and potential production cuts due to freeze-offs, which would accelerate the seasonal downtrend in natural gas inventories, as more natural gas is diverted away from underground storage facilities to meet space-heating requirements.

Natural gas inventories are poised to draw sharply lower when the U.S. Energy Information Administration releases its next weekly storage data at 10:30 a.m. ET on Thursday, Dec. 15, that will cover the week ended Dec. 9. Estimates suggest withdrawals ranging from the 120s Bcf to as much as the 140s Bcf, which would compare against a 79-Bcf five-year average drawdown and the 46-Bcf pull seen in the corresponding week in 2015.

The EIA's latest "Natural Gas Weekly Update" for the week to Dec. 7 showed that total U.S. gas consumption grew 15% week on week amid colder weather. Meanwhile, analysts with Energy GPS said in a note that a dip in temperatures has significantly impacted gas output since the start of December, with overall production across the Lower 48 down 0.6 Bcf and Canadian production down 1 Bcf, largely due to freeze-offs occurring on the well heads.

Within the range of estimates, the forthcoming storage figure would signal a significant uptick in the rate of weekly withdrawals, coming on the heels of the 42-Bcf drawdown during the week to Dec. 2. Overall inventories now at 3,953 Bcf would shrink, while overhangs to the year-ago level and the five-year average now sitting at 51 Bcf and 254 Bcf, respectively, would be substantially reduced.

However, returning mild weather across most of the country, including the major heat-consuming regions of the Northeast and Midwest looks to sap demand for heating, which should limit the amount of natural gas drawn from storage and allow for a pullback in the rate of weekly withdrawals.

In cash trade, supportive weather-driven demand expectations encouraged gains to prevail in price action for natural gas booked for Wednesday flow.

Across the major hubs, the charge to the upside was led by Transco Zone 6 NY day-ahead gas prices that surged by almost 71 cents on average to an index at $4.357/MMBtu. Chicago spot gas pricing followed with a nearly 12-cent increase in deals averaging at $3.784/MMBtu, then benchmark Henry Hub cash gas price action that tacked on roughly 5 cents on the session to average at $3.649/MMBtu and PG&E Gate hub price activity that advanced by about 2 cents to an index at $3.703/MMBtu.

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In regional terms, Northeast cash gas pricing was lifted by almost $1.05 to an index at $5.085/MMBtu, while Midwest and Gulf Coast next-day gas prices were bolstered by about 3 cents on average to indexes at $3.583/MMBtu and $3.486/MMBtu, respectively. Running against the wider uptrend, West Coast spot gas pricing shed roughly 2 cents to average at $3.453/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.