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February 2017 natural gas loses 9.6 cents in debut session despite big draw

February 2017 natural gas futures were on the defensive taking the lead from the expired January 2017 contract Thursday, Dec. 29. The fresh front-month contract stayed negative, sinking to a $3.754/MMBtu low despite a larger-than-anticipated storage withdrawal that erased the year-on-five-year-average storage surplus. The contract settled at $3.802/MMBtu, 9.6 cents lower on the session.

The U.S. Energy Information Administration reported a net 237 Bcf was withdrawn from natural gas inventories in the Lower 48 for the week ended Dec. 23 that was above market expectations as well as historical averages.

The latest pull left the total U.S. working gas supply at 3,360 Bcf, or 413 Bcf below the same week in 2015 and 79 Bcf below the five-year average of 3,439 Bcf.

Market analysts and traders had called for a withdrawal from storage ranging from 219 Bcf to 240 Bcf, with an average 231-Bcf pull projected for the week under review.

The figure compared to an 80-Bcf five-year average withdrawal and a smaller 50-Bcf pull during the same week in 2015.

While having successfully eliminated an impressive storage overhang that had been built throughout the previous heating season and into an injection season that extended to Nov. 11 when the total working gas supply reached a fresh record high of 4,047 Bcf, the market shrugged off the larger-than-anticipated storage pull and instead took solace in forecasts that suggest long-range moderation in weather that should allow an ample amount of natural gas to remain in storage heading into the next injection period.

The Weather Company said in its most recent outlook that for February 2017, slightly above-normal temperatures are eyed for the Northeast, with warmer-than-average temperatures seen for the Southeast, south-central U.S. and the Southwest. Colder-than-normal temperatures are anticipated in the north-central U.S. and the Northwest.

For March 2017, warmer-than-normal temperatures are projected for the Northeast, Southeast, south-central U.S. and the Southwest. Colder-than-usual conditions are eyed for the north-central region and the Northwest in March 2017.

But before the milder weather deflates demand in major heat-consuming regions and allows for a pullback in the rate of storage withdrawals, the market will have to contend with a cold January 2017, according to the latest forecasts from the National Oceanic and Atmospheric Administration.

Outlooks show below-average temperatures engulfing the entire West and central U.S. in the six- to 10-day period, leaving the eastern third of the country under average and above-average temperatures that will give way to below-average temperatures encompassing nearly all of the country, save for portions of the Southeast and Gulf Coast, in the eight- to 14-day period.

SNL Image

SNL Image

Natural gas' sensitivity to weather is likely to keep the market seesawing between gains and losses as volatility is fed by the constant forecast revisions.

Day-ahead market sensitivity to weather continued as traders moved a revised booked natural gas delivery for Friday through Saturday to accommodate for the end of the month and the New Year's holiday.

Prices were higher at most major hubs despite the inclusion of Saturday in the product. Transco Zone 6 NY surged nearly 30 cents to average atop $4/MMBtu, but bucking the uptrend Tetco-M3 held near unchanged at an index near $3.40. At the benchmark Henry Hub, Waha and Chicago, trades were nearly 5 cents higher to indexes near $3.70, $3.45 and $3.65, respectively. In the West, SoCal Border added nearly 5 cents and PG&E Gate gained about 10 cents to averages around $3.60 and $4.00, respectively.

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.