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February natural gas climbs as options expire

February natural gas futures were higher Thursday, Jan. 26, ahead of options expiration at the close of business and the contract's roll off the board at the Friday settle. Despite a neutral to bearish natural gas inventory report released at mid-morning, gains accelerated following the data's release, with the contract reaching $3.494/MMBtu, before edging back to a settle up 5.0 cents on the day at $3.382/MMBtu.

The U.S. Energy Information Administration reported a net 119-Bcf withdrawal from natural gas inventories in the Lower 48 during the week ended Jan. 20 that was below market expectations and well below historical averages.

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.

While the drawdown brought the total U.S. working gas supply to 2,798 Bcf, it trimmed deficits to the year ago level and five-year average to 348 Bcf and 20 Bcf, respectively.

Despite the bearish comparisons to consensus expectations and historical averages, the cut in total working gas inventories and weather outlooks that call for colder conditions in the Northeast through the midrange period offered some upside momentum as traders worked to cover positions ahead of the contract's expiration.

March futures were also higher, finishing the session with a 5.1-cent gain at $3.397/MMBtu.

This week's stock withdrawal was a step down in the rate of storage erosion following the 243-Bcf pull for the week to Jan. 13, that was the largest single weekly net withdrawal from working gas since the polar vortex event in January 2014, and came despite degree day data that showed 6.0% fewer heating degree days compared to the same period in 2016 and 10.6% fewer heating degree days compared to the normal.

"After beginning the winter heating season with the largest fill in history, underground storage volumes are now 0.7 percent below the five-year average as lower temperatures and new structural demand in the form of natural gas generation and exports have facilitated triple-digit net withdrawals six of the past seven weeks," the American Gas Association said Jan. 26 in its Natural Gas Market Indicators.

The steady erosion of the working gas supply and constant revisions to midrange weather forecasts offer enough uncertainty to drive the upside.

The latest revisions to the National Oceanic and Atmospheric Administration's six- to 10-day and eight- to 14-day maps outline below-average temperatures in the key heat-consuming Northeast through Feb. 8.

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SNL Image

Longer range, weather forecasts suggest the possibility of a polar vortex that would move frigid air across Western Canada and the Northeast U.S., driving a sharp ramp up in heating demand and large withdrawals of natural gas from inventories.

Day-ahead trade was supported sharply higher by weather forecasts that call for cold to span major portions of the country beginning on Friday.

Trade at the Northeast's Transco Zone 6 NY hub were about 20 cents higher to an index atop $3.35 and Tetco-M3 traded similarly higher to an index atop $3.30. At the benchmark Henry Hub, trade was more than 15 cents higher to an index atop $3.40, Waha gained a similar amount to an index near $3.30 and Chicago gained more than 10 cents to an index nearing $3.35. In the West, SoCal Border trades were about 5 cents higher and PG&E Gate traded up about 10 cents to indexes near $3.45 and $3.75, 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.