January 2018 natural gas futures seesawed through the Tuesday, Dec. 19, trading session in a range from $2.692/MMBtu to $2.769/MMBtu. Early selling led to renewed short-covering gains off the low, but ultimately the bears were reinvigorated and the contract settled back in the red, 5.3 cents lower at $2.692/MMBtu.
Demand is expected to get pulled higher as temperatures across major heat-consuming regions are forecast to tumble.
The National Weather Service six- to 10-day and eight- to 14-day outlooks show below-average temperatures across the major heat-consuming Northeast and central U.S.
Cold weather outlooks are driving the recent short-covering rally as participants see strong demand ramping up the pace of storage withdrawals moving into the peak of the winter heating season.
Following an uncharacteristic injection into natural gas inventories in the week to Dec. 1, the U.S. Energy Information Administration reported that 69-Bcf was withdrawn from the working gas inventory in the week to Dec. 8. The pull was above market expectations but below the 78-Bcf five-year-average withdrawal and the 132-Bcf net withdrawal reported during the corresponding week in 2016.
Working gas stocks total 3,626 Bcf, which is 27 Bcf less than the five-year average and 201 Bcf less than last year at this time.
For the Thursday, Dec. 21, inventory report that will cover the week to Dec. 15, outlooks call for a triple-digit withdrawal from stocks as cold weather during the review week propelled natural gas demand higher.
An increase in total consumption of 27% in the week to Dec. 13, partially included in the weekly storage review week, was driven in part by a 50% week-on-week gain in residential and commercial consumption that was supported by cold weather. The EIA also reported an 18% gain in consumption in the power-generating sector and an 8% week-on-week increase in industrial consumption.
The lack of sustained cold weather thus far this winter heating season and expected through the peak winter months, however, is preventing sustained rallies in natural gas futures.
The latest winter outlook from The Weather Company suggests that after a volatile December, volatility will continue into January. Chief meteorologist Todd Crawford said the coldest air will gradually settle into the north-central states and warmth and dryness will continue across most of the southern U.S.
Jeff Richter, principal at EnergyGPS, which partnered in the outlook, said the divided winter outlook in the Lower 48 "will not bode well for upside to the overall natural gas market in January … [which] is evident by the big push down on the winter strip through the first couple weeks of December, so widespread cold air is needed in January to keep pace with the incremental supply on the grid."
Richter noted that any warmer-than-normal conditions will keep downward pressure on the remaining portion of the winter 2018 strip by February 2018, and four of the six regions are expected to be relatively warm.
Natural gas traded in day-ahead markets at higher prices alongside rising demand forecasts.
Transco Zone 6 NY added upwards of 25 cents to an index near $3.15, Tetco-M3 jumped about 20 cents to an index near $2.65, Henry Hub traded up nearly 5 cents to an index near $2.75, and Waha and Chicago added similar amounts to indexes atop $2.50 and $2.70, respectively.
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, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.