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March natural gas futures tick higher ahead of contract expiration

After settling 0.9 cent lower at $2.625/MMBtu ahead of the weekend, NYMEX March natural gas futures rose in short covering overnight leading to the Monday, Feb. 26, open and the contract's roll off the board at the close of business. At 6:50 a.m. ET (1150 GMT) the contract was 4.7 cents higher at $2.672/MMBtu.

Although forecasts show average to below-average temperatures expanding in scope across the central and eastern U.S., moderate conditions associated with the calendar suggests limited weather-related demand support.

Updated National Weather Service outlooks show below-average temperatures encompassing nearly the entire West, fringes of the Midwest and a small patch of the Southeast in the six- to 10-day period, before shifting in scope to settle over less but still a majority of the West, slightly more of the Midwest, the lower tier of the mid-Atlantic, all of the Southeast and about half of the Gulf Coast in the eight- to 14-day period.

Average temperatures initially contained to a band along the west-central U.S. and the lower half of the mid-Atlantic into parts of the Southeast eventually scatter to hold over the edges of the Northeast, balance of the mid-Atlantic, much of the Midwest, parts of the Gulf Coast and a few areas of the Southwest. Above-average temperatures dominant in the central and eastern U.S. in the shorter-range view become confined to portions of the Northeast, Michigan, Texas and southern Rockies further out.

"It is the end of the winter heating season and normal to even below normal temperatures this time of the year are not as supportive as they would be in the heart of the season," Energy Management Institute principal Dominick Chirichella said in a Feb. 23 note to clients.

Should weather implied by the calendar keep demand deflated, the pace of storage erosion will likely remain subdued moving closer to the end of the traditional withdrawal season on March 31.

Lackluster weather-related demand is already seen to have slowed down the rate of storage withdrawals from the 194-Bcf draw in the week ended Feb. 9 to the 124-Bcf pull in the most recent inventory report week ended Feb. 16.

While the latest reported storage drawdown was on the high end of the range of estimates coming into the day and above the 92-Bcf year-ago pull, it was below the closely watched 145-Bcf five-year-average draw. It left total working gas stocks at 1,760 Bcf, or 609 Bcf below the prior-year level and 412 Bcf below the five-year average of 2,172 Bcf.

Another modest storage draw could be in store when the next inventory report that will cover the week to Feb. 23 is released, as the EIA's latest "Natural Gas Weekly Update" shows warmer weather in the eastern U.S. that drove down natural gas demand in the residential/commercial sector, contributing to a 14% week-on-week decline in total U.S. gas consumption during the week to Feb. 21.

An ongoing slowdown in the rate of weekly stock draws should allow for more natural gas to remain in underground storage than previously expected. Assuming net storage draws matching the five-year average for the balance of the withdrawal season, the EIA sees total natural gas inventories reaching 1,290 Bcf on March 31, which is 24% lower than the five-year average and the second lowest end-of-season level reported since 2010.

In cash activity, traders on Feb. 23 moved a revised natural gas offering for Saturday-through-Monday flow at predominantly reduced values amid pressure from the weekend inclusion in the package.

Among the key hubs, PG&E Gate spot gas prices led the charge lower with a near 17-cent decline on average to an index at $2.739/MMBtu. Chicago next-day gas price action followed with an almost 13-cent retreat to an index at $2.400/MMBtu, then Transco Zone 6 NY hub activity that unraveled about 8 cents to average at $2.500/MMBtu and benchmark Henry Hub day-ahead gas pricing that logged a 6-cent decrease in trades averaging at $2.579/MMBtu.

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On a regional basis, West Coast cash gas price activity tumbled by around 32 cents to an index at $2.333/MMBtu, as Midwest and Northeast day-ahead gas prices faltered by roughly 13 cents on average to indexes at $2.359/MMBtu and $2.308/MMBtu, respectively. Gulf Coast spot gas price action stumbled by approximately 7 cents to an index at $2.438/MMBtu.

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