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April natural gas sinks as impending spring rains on demand outlooks

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April natural gas sinks as impending spring rains on demand outlooks

April natural gas futures were lower at midweek as market participants look beyond near-term cold to focus instead on the impending arrival of spring. The April contract traded on the New York Mercantile Exchange from $2.710/MMBtu to $2.798/MMBtu Wednesday, March 14, and settled 5.5 cents lower at $2.731/MMBtu.

The market is facing pressure from anticipation that current cold weather in major heat-consuming markets will give way to milder spring weather that would sap demand and lead to a reversal from weekly storage withdrawals to weekly injections.

In the meantime, midrange forecasts show lingering below-average temperatures that will keep demand for heating elevated.

The U.S. Energy Information Administration's latest "Natural Gas Weekly Update" for the week ended March 7 reflects a 2% week-over-week gain in total U.S. gas consumption led by a 10% increase in residential/commercial-sector demand attributed to a cooldown throughout much of the country.

Degree day data from the National Oceanic and Atmospheric Administration shows that for the week to March 10, there were 16.1% more heating degree days than in 2017 and 2.5% fewer than normal.

The uptick in demand is expected to drive a storage withdrawal of 100 Bcf when the EIA releases its latest inventory data at 10:30 a.m. ET on Thursday, March 15. The latest figure will be well above the 57-Bcf withdrawal reported the previous week and will top both the 55-Bcf year-ago withdrawal and the 97-Bcf five-year average pull.

A withdrawal at consensus for the week to March 9 would drive the total working gas inventory to 1,525 Bcf, widen the year-on-year deficit to 725 Bcf and extend the year-on-five-year-average deficit to 303 Bcf.

Below-average temperatures are forecast to grip nearly the entire country over the six- to 10-day and eight- to 14-day periods. A portion of Florida, fringes of the Gulf and a portion of the south-central U.S. will see the only average and above-average temperatures through late March, according to National Weather Service forecasts.

The lingering cold should stoke additional demand and large storage withdrawals before spring weather takes hold to trim demand and allow for the onset of storage injections.

Natural gas inventories remain above the five-year average historical range, but total storage looks to end the withdrawal season at 1,402 Bcf on March 31, the traditional end of the season, which would be 18% lower than the five-year average.

"I believe that the oversupply of course will outweigh any bullish pressure, and that bullish pressure is a short-term phenomenon more than anything else," FX Empire analyst Christopher Lewis said in a note to clients.

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.