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March natural gas futures leak lower despite underlying support

Following a 5.8-cent advance in the truncated workweek's opening session to settle at $2.616/MMBtu, NYMEX March natural gas futures were slightly lower overnight ahead of the Wednesday, Feb. 21, open, even as traders looked to support from revised weather outlooks and supply-side fundamentals. At 6:43 a.m. ET, the front-month contract was trading 1.3 cents lower at $2.603/MMBtu after covering an overnight range of $2.565/MMBtu to $2.643/MMBtu.

"I think winter is over for the most part, however, we may see another period of cold temperatures before it is finally put to bed," FX Empire analyst James Hyerczyk said.

Midrange National Weather Service forecasts show below-average temperatures that hold over nearly the entire West and a few areas of the Midwest in the six- to 10-day period spill into about half of the Midwest in the eight- to 14-day period, as average temperatures that initially settle over a narrow band along the central U.S. eventually overtake the bulk of the country's eastern two-thirds. Above-average temperatures dominant in the central and eastern U.S. in the near-term shrink in scope to be contained to the Northeast, Michigan, lower portions of the South further out.

The longer-range outlook from The Weather Company calls for colder-than-normal conditions for the northern half of the U.S. in the March-through-May period, accompanied by warmer-than-normal weather across the southern half.

With the peak of the winter heating season already in the rearview mirror, seasonable to colder-than-normal weather is not expected to generate frigid conditions but could still generate some late-season heating demand likely to encourage storage withdrawals.

Natural gas inventories were at 1,884 Bcf, or 577 Bcf below the year-ago level and 433 Bcf below the five-year average of 2,317 Bcf, after the U.S. Energy Information Administration reported a surprisingly large 194-Bcf draw in the week ended Feb. 9 that bested historical averages and the full range of estimates coming into the day.

Assuming net withdrawals matching the five-year average for the remainder of the heating season, the EIA sees working gas stocks ending the traditional withdrawal season on March 31 at 1,269 Bcf, or 25% lower than the five-year average and the second-lowest end-of-season level reported since 2010.

Preliminary projections for the next weekly storage data due out on Thursday, Feb. 22, see the rate of withdrawals slowing down to 110 Bcf to as much as 119 Bcf for the report week ended Feb. 16. That would compare to a 92-Bcf year-ago pull and the 145-Bcf five-year-average withdrawal.

Lingering cold in forecasts, however, could allow for weekly storage withdrawals to pick up pace anew, supporting outlooks for a significantly diminished end-of-heating-season inventory level.

A declining natural-gas rig count adds to supply threat, with the most recent North America Rotary Rig Count from Baker Hughes Inc for the week ended Feb. 16 showing natural gas-directed rigs still up 24 on the year at a total of 177 but down seven week on week.

The natural gas offering booked Tuesday for Wednesday delivery notched gains in much of the country on the back of mostly supportive demand expectations.

Among the key hubs, PG&E Gate day-ahead gas pricing led the uptrend with a near 56-cent increase to an index at $3.278/MMBtu. Chicago and benchmark Henry Hub spot gas prices followed with better-than-13-cent gains on average at indexes at $2.549/MMBtu and $2.607/MMBtu, respectively. Transco Zone 6 NY cash gas price activity logged an 8-cent decline against the wider uptick in deals averaging at $2.520/MMBtu.

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In regional terms, West Coast next-day gas price action added almost $1.41 on the session to average at $3.705/MMBtu, as Midwest day-ahead gas price activity posted a roughly 27-cent increase in trades averaging at $2.577/MMBtu. Gulf Coast cash gas prices rose by about 9 cents on average to an index at $2.531/MMBtu, while Northeast spot gas pricing defied the dominant uptrend with an approximately 5-cent slump to an index at $2.262/MMBtu.

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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 and natural gas index prices, as well as forwards and futures, visit our Commodities pages.