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January 2017 gas futures stalled amid dueling fundamentals

After extending 2.3 cents lower in the week's opening session to settle at $3.392/MMBtu, January 2017 natural gas futures reflected little change overnight ahead of the Tuesday, Dec. 20, open, as bullish near-term storage prospects ran counter to lackluster weather-related demand implied by midrange forecasts.

At last glance, the front-month January 2017 natural gas futures contract was trading 2.7 cents lower at $3.365/MMBtu after spanning an overnight range of $3.354/MMBtu to $3.408/MMBtu.

"While we still see potential for substantial storage withdrawals for last week and this week, the forward temperature outlook now looks much less intimidating, with conditions in the 11-15 day period consistent with more moderate, near-average storage withdrawals," Tim Evans, an analyst from Citi Futures Perspective, wrote in a Dec. 19 note to clients.

Natural gas storage erosion kicked into higher gear during the week ended Dec. 9, for which the U.S. Energy Information Administration outlined a 147-Bcf draw from stocks that was the first triple-digit withdrawal of the season. The reported storage pull took overall inventories to 3,806 Bcf, turning the year-on-year surplus to a deficit of 50 Bcf and shrinking the year-on-five-year average overhang to 186 Bcf.

For the next weekly storage data due out Dec. 22 that will cover the week ended Dec. 16, traders and analysts anticipate another impressive inventory draw ranging from 184 Bcf to as much as 203 Bcf, which would compare against a 101-Bcf five-year average withdrawal and a 33-Bcf drawdown during the same week in 2015.

Recent and current cold weather suggests increased demand for heating that will likely allow for a continuation of the ramped-up rate of storage decline. Further out, however, moderating weather in store for major heat-consuming regions suggest reduced heating demand that should keep a lid on the amount of natural gas drawn from underground storage facilities.

The National Weather Service sees above-average temperatures enveloping nearly the entire eastern two-thirds of the country and fringes of the Southwest through both the upcoming six- to 10-day and eight- to 14-day periods.

Average temperatures that span portions of the Midwest and Southwest in the six- to 10-day outlook expand to include more of the West in the eight- to 14-day projection, as below-average temperatures that grip a majority of the West and the edges of the Midwest in the shorter-range period shrink in scope to be confined to a smaller section of the West in the longer range.

Diminished demand amid milder weather across key heating regions could reverse the recent run-up in inventory erosion.

In cash activity, the price of natural gas for day-ahead flow opened the workweek on a mixed tenor Dec. 19, as changing weather looked to drive demand to varied directions.

Looking at the major delivery locations, a near $1.63 gain took Transco Zone 6 NY next-day gas pricing to an index at $5.879/MMBtu, as a better-than-4-cent increase steered benchmark Henry Hub cash gas price action to an average at $3.548/MMBtu, and an almost 3-cent uptick nudged PG&E Gate hub activity to an index at $3.712/MMBtu. Conversely, a reduction of a little over 34 cents drove Chicago spot gas pricing to an average at $3.549/MMBtu.

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On a regional basis, Northeast cash gas price activity added 89 cents on the session to average at $4.906/MMBtu, as Gulf Coast day-ahead gas price activity notched a nearly 3-cent gain in deals averaging at $3.454/MMBtu. By contrast, West Coast and Midwest spot gas prices fell by about 15 cents on average to indexes at $3.411/MMBtu and $3.514/MMBtu, respectively.

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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.