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March natural gas weighed down by fundamentals ahead of options expiration

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March natural gas weighed down by fundamentals ahead of options expiration

After ending the prior session down 2.5 cents at $2.634/MMBtu, NYMEX March natural gas futures continued to unwind amid bearish fundamentals overnight ahead of the Friday, Feb. 23, open and options expiration at the close of business. At 6:55 a.m. ET, the March natural gas futures contract was down 7.6 cents to $2.558/MMBtu.

Storage withdrawals slowed from the surprisingly large 194-Bcf draw in the week ended Feb. 9 to the 124-Bcf pull in the most recent inventory report week ended Feb. 16.

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, but 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.

Weather that generated heating degree days 15.9% less than the norm in the week to Feb. 17, according to degree day data from the National Oceanic and Atmospheric Administration, is seen to have kept a lid on the amount of natural gas drawn from underground storage facilities during the inventory report week.

Recent and potential demand weakness associated with milder to warmer weather will likely keep the pace of storage erosion subdued in the subsequent storage reports, allowing for more natural gas to remain in inventories than previously expected.

Assuming net storage draws matching the five-year average for the balance of the withdrawal season, the U.S. Energy Information Administration 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.

The latest "Natural Gas Weekly Update" for the week to Feb. 21, however, details a 14% week-on-week decline in total U.S. gas consumption as warmer weather prevailed in the eastern U.S. alongside flat production, which feeds into expectations for a modest storage withdrawal as much of the week in review will be reflected in the next storage report that will cover the current week to Feb. 23.

Moving forward, warmer weather in forecasts and moderate conditions implied by the calendar look to keep demand deflated in the coming weeks.

In its revised outlooks, the National Weather Service sees the country split between above-average temperatures over almost the entire eastern U.S. into much of the Gulf Coast and below-average temperatures over a majority of the western U.S. in the six- to 10-day period, as average temperatures linger over a few areas of the Eastern Seaboard and the central U.S.

In the eight- to 14-day period, above-average temperatures become contained to the upper tier of the Northeast and southern Florida. Below-average temperatures expand from the bulk of the West into most of the Midwest, about half of the Mid-Atlantic and parts of the South, as average temperatures overtake the remainder of the central and eastern U.S.

With the peak of the winter heating season in the rearview mirror, below-average temperatures at this time of the year are no longer expected to bring frigid conditions that could prompt significant heating demand.

The price of next-day natural gas retreated in much of the country Feb. 22, in line with forecasts for sagging demand.

Among the key hubs, PG&E Gate cash gas prices led the downtrend with a near 43-cent decline on average to an index at $2.908/MMBtu. Transco Zone 6 NY day-ahead gas pricing followed with an almost 15-cent reduction in deals averaging at $2.578/MMBtu, then Chicago hub activity that unraveled around 4 cents to average at $2.528/MMBtu and benchmark Henry Hub spot gas price action that floundered by about 1 cent to an index at $2.639/MMBtu.

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Regionally, West Coast next-day gas pricing tumbled by approximately 79 cents to an index at $2.649/MMBtu, as Northeast spot gas prices fell by roughly 10 cents on average to an index at $2.439/MMBtu. Midwest cash gas price action deflated by near 7 cents in trades averaging at $2.488/MMBtu, as Gulf Coast day-ahead gas price activity shed almost 5 cents on the day to average at $2.507/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.