After tumbling by 23.9 cents in the week's opening session to settle at $3.507/MMBtu, January 2017 natural gas futures climbed to a $3.540/MMBtu overnight high, before reversing gains ahead of the Tuesday, Dec. 13, open, as the market attempts to gauge the fundamentals in a search for definitive direction. The contract was last traded 3.0 cents lower at $3.477/MMBtu.
Weather outlooks remain varied as forecast maps show colder conditions that are dominant in the near-term shrinking in scope to give way to milder weather over a majority of the country further out.
The National Weather Service sees below-average temperatures enveloping the bulk of the country in the upcoming six- to 10-day period, save for a narrow band stretching from the lower tier of the Mid-Atlantic into a section of the Southeast that is forecast to be under the scope of average temperatures and an area of the Southeast projected to be encompassed by above-average temperatures.
Further out to the eight- to 14-day period, below-average temperatures recede from much of the U.S. to be confined to portions of the West, as average temperatures expand to overtake a majority of the central U.S. and the balance of the West. Above-average temperatures spread to settle over most of the East and the fringes of the Midwest.
Cold weather to start December and additional cold in store in the near term are feeding anticipation of larger withdrawals from storage in the coming weeks, which would tighten the supply/demand balance.
Projections for the next inventory report due out at 10:30 a.m. ET on Thursday, Dec. 15, call for withdrawals ranging from the low 120s Bcf to as much as 140 Bcf for the review week ended Dec. 9, which would compare against a 79-Bcf five-year average drawdown and the 46-Bcf pull seen in the corresponding week in 2015.
Within the range of estimates, the forthcoming storage figure would signal a significant uptick in the rate of weekly withdrawals, coming on the heels of the 42-Bcf drawdown during the week to Dec. 2. Overall inventories now at 3,953 Bcf would shrink, while overhangs to the year-ago level and the five-year average that are sitting at 51 Bcf and 254 Bcf, respectively, would be substantially reduced.
Moderating weather in the longer-range outlook will likely allow for a brief pullback in the pace of storage erosion, but prospects much further out suggest a more significant impact on total working gas stocks that would exacerbate the market imbalance. Winter weather is expected to erase storage overhangs by as early as the end of December.
In cash activity, natural gas prices for day-ahead flow was predominantly tethered to the downside Monday, in tandem with futures.
Across the key hubs, the charge lower was led by Transco Zone 6 NY next-day gas pricing that crumbled by nearly 37 cents to average at $3.650/MMBtu. Chicago spot gas price action followed with an almost 18-cent decline in transactions averaging at $3.669/MMBtu, then benchmark Henry Hub and PG&E Gate cash gas prices that fell by roughly 15 cents on average to indexes at $3.600/MMBtu and $3.684/MMBtu, respectively.
On a regional basis, Northeast day-ahead gas price activity tumbled by about $1.21 to an index at $4.038/MMBtu, as Midwest and West Coast next-day gas prices deflated by almost 15 cents on average to indexes at $3.550/MMBtu and $3.469/MMBtu, respectively. Gulf Coast spot gas pricing shed about 18 cents on the session to average at $3.457/MMBtu.
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