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March gas futures on defensive ahead of 1st day in lead role

Taking the lead from the February gas contract that rolled off the board ahead of the weekend with a 0.9-cent gain at a settle at $3.391/MMBtu, March natural gas futures were lower in overnight trading leading up to the Monday, Jan. 30, open, as traders look to weakening fundamentals. Trading to an overnight low at $3.291/MMBtu, the fresh front-month contract was last seen 5.5 cents lower on the session at $3.303/MMBtu.

Revised weather outlooks that show warmer conditions engulfing a majority of the country spell diminished natural gas demand for heating in the coming weeks, which should allow for a continuation of the lackluster pace of inventory erosion in the subsequent storage data.

The latest National Weather Service projections show above-average temperatures stretching from much of the Southeast and the Gulf Coast into a small section of the Midwest and bulk of the West in the upcoming six- to 10-day period, before overtaking nearly the entire southern U.S., more of the Midwest and a larger area of the West further out to the eight- to 14-day period.

Average to below-average temperatures are called for the Northeast, Mid-Atlantic, a majority of the Midwest and a tiny patch of the Northwest.

Although seasonable weather conditions linger over the major heat-consuming regions of the Northeast and Midwest in forecasts, the most significant cold of the season is expected to already be in the rearview mirror and higher low temperatures associated with the calendar should heap additional pressure on heating demand.

Softer demand would limit drawdowns from working gas stocks and allow more natural gas production to be diverted to underground storage facilities, feeding the potential for inventories to remain more than adequate to end the titular withdrawal season.

Already, the rate of weekly storage withdrawals has begun to step lower, as the U.S. Energy Information Administration's latest inventory report outlined a 119-Bcf pull from stocks for the week ended Jan. 20. The reported drawdown signaled a significant pullback from the 243-Bcf withdrawal detailed for week to Jan. 13. It was also a downside miss against the average anticipated 121-Bcf draw, as well as both the 176-Bcf five-year-average drawdown and the 202-Bcf pull seen in the corresponding week in 2016. The week's data left total working gas in storage at 2,798 Bcf, trimming deficits to the year-ago level and five-year average to 348 Bcf and 20 Bcf, respectively.

For the next weekly storage report due out on Thursday, Feb. 2, that will cover the week to Jan. 27, market participants anticipate withdrawals in the lower 90s Bcf.

The EIA's latest "Natural Gas Weekly Update" for the week to Jan. 25, much of which will be reflected in the upcoming storage report, fuels the potential for additional relatively modest storage draws in the subsequent inventory data, as it shows total U.S. gas consumption extending 8% lower week over week.

The EIA sees inventories ending March at 1,745 Bcf, just 3.3% below the five-year average for that time of year.

In cash trading, the natural gas offering booked on Jan. 27 for Saturday-through-Monday flow shed value in much of the country amid pressure from the typical weekend inclusion in the revised package.

Looking at the key delivery locations, losses on either side of 14 cents on average steered spot gas prices to indexes at $3.196/MMBtu at Chicago, $3.618/MMBtu at PG&E Gate and $3.305/MMBtu at the benchmark Henry Hub. Meanwhile, a better-than-29-cent gain against the wider downtrend took Transco Zone 6 NY cash gas pricing to an index at $3.633/MMBtu.

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On a regional basis, Midwest day-ahead gas price activity unraveled roughly 13 cents to average at $3.160/MMBtu, as West Coast spot gas pricing notched a near 22-cent decline in trades averaging at $3.026/MMBtu. Gulf Coast next-day gas prices faltered by almost 15 cents on average to an index at $3.175/MMBtu, as Northeast cash gas price action rose by about 24 cents against the dominant retreat to an index at $3.709/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.