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January 2017 natural gas adds to upside in week's finale

January 2017 natural gas traded higher Friday, Dec. 9, as cold weather forecasts continued to drive bullish sentiment. The contract closed the session at $3.746/MMBtu, adding 5.1 cents on the day.

Weather forecasts were the driving force behind recent gains, as below-average temperatures have made their way to major heat consuming regions, and look to remain in place through the upcoming 14-days.

SNL Image

SNL Image

"Cold weather is expected to continue to intensify next week — and to remain until well past Christmas with only brief periods of moderation," said EBW Analytics Andy Weissman.

Falling temperatures will force the demand for natural gas higher and impact the natural gas supply, as less production becomes available to move into inventories and more natural gas is withdrawn from the total working gas supply.

Inventory withdrawal season began in the week to Nov. 18, when 2-Bcf was pulled from storage. A sharp increase to a 50-Bcf withdrawal in the week to Nov. 25 kicked the withdrawal season into full gear, but the subsequent report for the week to Dec. 2 showed a pullback in the rate of decline, as EIA data outlined a 42-Bcf pull from stocks.

Changes in weather to much colder conditions across major parts of the country implies much larger storage withdrawals in the weeks ahead.

"At yesterday's prices, our model calls for EIA's next four reported withdrawals to total 739 Bcf," Weissman said.

Inventories currently sit at 3,953 Bcf, with storage overhangs of 51 Bcf above the year-ago level and 254 Bcf above the five-year average storage level of 3,699 Bcf. A 739-Bcf four-week total withdrawal would reduce the amount of gas in storage versus the five-year average by 372 Bcf for the four weeks and would create a 461 Bcf deficit versus last year before the end of December.

The overall health of the natural gas supply has limited the market's ability to drive sharp and sustainable gains, but amid the anticipation of the accelerated pace of storage erosion, analysts see ample price support ahead.

"The trend in storage versus the five-year average is often a particularly good indicator of price movements," Weissman said. "The potential 372 Bcf decline is one of the largest swings we've seen in many years — and is likely to propel natural gas prices significantly higher."

Day-ahead trades were done at mostly higher prices, as weather outlooks mixed with the weekend days included in the three-day offering to keep demand projections vaulted.

The Northeast bucked the wider uptrend as Transco Zone 6 NY trades tumbled about 45 cents to an index near $3.70, and Tetco-M3 gave back a similar amount to an index below $3.55.

Elsewhere, despite weekend inclusion that typically softens load outlooks, prices were higher amid strong weather-related demand support. Henry Hub deals were nearly 10 cents higher to an index around $3.75, Waha gained about 5 cents to an index atop $3.55 and Chicago moved more than 10-cents higher to an index atop $2.80. In the West, SoCal Border trades were nearly 10 cents higher to an index near $3.70 and PG&E Gate added nearly 15 cents to an index atop $3.85.

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.