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March natural gas extends losses as demand erosion expected

March natural gas traded lower Tuesday, Jan. 31, as fundamental support continued to evade the market. Price pressure continued from weak weather-related demand outlooks and from a natural gas supply expected to remain ample at the end of the withdrawal season. The contract breached support at $3.25/MMBtu to find a $3.110/MMBtu three-week intra-day low before settling 11.5 cents lower at $3.117/MMBtu.

The natural gas supply was trimmed considerably in recent weeks, but after declining 243-Bcf in the week to Jan. 13, the larger storage withdrawals are expected to have been booked, as weather changes portend heating demand erosion and a decline in demand for natural gas.

On the heels of the 243-Bcf pull which was the largest single weekly net withdrawal from working gas since the polar vortex in January 2014, natural gas inventory erosion slowed with a 119-Bcf pull from stocks in the week to Jan. 20.

The withdrawal was less than the market consensus ahead of the report's release that called for a 121-Bcf drawdown from stocks and was below both the 202-Bcf withdrawal reported for the same week in 2016 and the five-year average withdrawal of 176 Bcf.

The drawdown brought total U.S. working gas supply to 2,798 Bcf, or 348 Bcf below the year-ago level and 20 Bcf below the five-year average storage level of 2,818 Bcf.

Analysts and traders looking ahead to the report for the week to Jan. 27, due out from the U.S Energy Information Administration on Feb. 2, anticipate a further step down in storage erosion, with outlooks pointing to a pull in the 90s Bcf.

Demand for natural gas is expected to have been trimmed by warmer weather in the week covered by the storage report. The EIA reported that for the review period to Jan. 25 consumption in the residential and commercial sectors declined by 15% to average 31.6 Bcf/d, 36% below the same week in 2016.

Weather forecasts imply additional demand erosion as the latest forecasts from the National Oceanic and Atmospheric Administration for both the six- to 10-day and eight- to 14-day periods show above-average temperatures returning to nearly the entire U.S.

SNL Image

SNL Image

Warm weather, particularly slated for the major heat consuming Northeast and Midwest markets through mid-February provide key downside pressure for the natural gas markets.

Weather and pressure from natural gas futures routing combined to press next-day gas markets lower in deals done for Feb. 1 delivery at the major U.S. hubs.

Correcting from prior gains, deals at the Transco Zone 6 NY hub shed nearly 35 cents to an index near $3.00, while Tetco-M3 traded down about 10 cents to an index below $2.95. The market at the benchmark Henry Hub slipped about 20 cents to an index near $3.00, Waha traded about 15 cents lower to an index below $2.85, and Chicago gave back more than 10 cents to an index near $3.00. At the West hubs, SoCal Border trades slipped more than 10 cents to an index below $3.00 and PG&E Gate trades were off about 10 cents to an index near $3.45.

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.