February natural gas futures rebounded in the week's opening session Monday, Jan. 23, in bargain hunting at lows, while weather forecasts suggest ample demand that should keep natural gas inventories declining. The contract fell to a $3.145/MMBtu low and moved as high as $3.252/MMBtu in intraday trade, before closing the session 3.9 cents higher at $3.243/MMBtu.
Weather forecasts offer the market some modest upside support as revisions show a mix of predominantly average and below-average temperatures across the country in the six- to 10-day period, with above-average temperatures confined to a small portion of the Northeast, portions of the north-central and central U.S., a small portion of the Northwest and along the California coast.
The eight- to 14-day forecast shows average temperatures dominating in the eastern-third of the country, below-average temperatures dominating in the West, and above-average temperatures gripping the majority of the central U.S.
As forecast, weather should provide some demand support in major heat-consuming regions as average temperatures equate to readings that support ongoing demand for heat.
Natural gas inventories should continue to decline, but analysts and traders expect the most significant weekly reductions have already been booked, and look for forthcoming pulls to keep the total working gas supply near the five-year average levels.
Natural gas inventories sit at 2,917 Bcf, with deficits to the year-ago level and five-year average pegged at 431 Bcf and 77 Bcf, respectively, after a 243-Bcf withdrawal from natural gas inventories in the Lower 48 for the week to Jan. 13.
The EIA said in its latest "Natural Gas Weekly Update" that for the review week to Jan. 18, much of which will be reflected in the upcoming storage report due out at 10:30 a.m. ET on Jan. 26, total U.S. consumption of natural gas fell 22% compared with the previous report week, with power burn down 22% week over week, industrial-sector consumption 7% lower and residential- and commercial-sector consumption off 29%. Additionally, natural gas exports to Mexico decreased by 4%.
Natural gas inventories are expected to sit at a healthy level leading into the next injection period.
Although some analysts suggest the market still has potential to rally in the next few weeks, the upside remains contingent on weather and storage and gains have been limited.
"It is likely that we will see another rally in natural gas over the coming weeks but that depends on Mother Nature and EIA storage reports which are one and the same," analyst Andrew Hecht said. "Heating demand over the coming weeks will determine if the $4 price level remains elusive."
Concurring that fresh waves of cold and larger storage withdrawals keep the possibility of price spikes alive, Citi Futures analyst Tim Evans said, "We note that seasonal heating demand will begin walking lower in the months ahead, reducing the potential for dynamic moves higher."
Trade in the day-ahead markets was mixed by weather-related demand.
The Northeast and some West markets moved higher as stormy weather supports demand. Deals at Transco Zone 6 NY were nearly 10 cents higher to an index near $3.10 and Tetco-M3 traded more than 10 cents higher to a similar index. At the SoCal Border, trade was more than 10 cents higher to an index near $3.30, while PG&E Gate followed the wider market to the downside, giving back about 1 cent to an index near $3.55.
Elsewhere, deals at the Henry Hub softened more than 5 cents to an index around $3.15, Waha traded down about 5 cents to an index below $3.00 and Chicago shed about 5 cents to an index nearing $3.10.
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