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Long-range weather outlook pressures natural gas futures despite storage outlook

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Essential Energy Insights - January 2021


Long-range weather outlook pressures natural gas futures despite storage outlook

After extending gains early Wednesday, March 21, April natural gas futures on the New York Mercantile Exchange reverted back to negative as remaining midrange weather support failed to hold. The contract moved to a $2.708/MMBtu high but slipped to a $2.634/MMBtu low before closing the midweek session with a loss of 3.7 cents at $2.638/MMBtu.

Weather outlooks for the period from April through June are mixed and driving downside pressure. According to the latest outlook from The Weather Company released March 20, warmer-than-normal weather should grace the southern half of the United States, particularly Texas and the southern Rockies, while below-average temperatures are expected in the northern Plains and Northwest. Earlier in the month, the National Oceanic and Atmospheric Administration released its outlook for April through June, expecting warmer-than-normal conditions across much of the country, with the exception of the Pacific Northwest and the north-central U.S., which should see equal chances of below-average, normal or above-average temperatures.

Warming associated with spring should begin to sap heating demand after winter blows its last blasts of frigid cold through the midrange period. The six- to 10-day outlook from the National Weather Service shows the bulk of the country's eastern two-thirds will be encompassed by average to above-average temperatures, but the eight- to 14-day projection shows a majority of the central U.S. and mid-Atlantic into portions of the Northeast could see below-average temperatures. The shorter-range view shows below-average temperatures confined to most of the Northeast and the western U.S., while the extended forecast outlines average to above-average temperatures over much of the West and the balance of the eastern U.S.

Lingering cold weather in the review week to March 14, much of which will be included in the next inventory report due out at 10:30 a.m. ET on Thursday, March 22, drove a 9% week-on-week increase in residential/commercial-sector consumption.

The heavy consumption could result in a storage withdrawal between 85 Bcf and 93 Bcf, with consensus calling for a 90-Bcf withdrawal for the week to March 16, according to a survey of market analysts and experts. Within the range of expectations, the latest figure will be at or below the 93-Bcf withdrawal reported the previous week, well below the 137-Bcf year-ago withdrawal and well above the 53-Bcf five-year average pull.

Natural gas inventories currently sit at 1,532 Bcf, or 718 Bcf below the year-ago level and 296 Bcf below the five-year average storage level of 1,828 Bcf, after the 93-Bcf withdrawal reported for the week to March 9. A withdrawal at consensus this week would drive the total working gas inventory to 1,442 Bcf, trim the year-on-year deficit to 671 Bcf and extend the year-on-five-year-average deficit to 333 Bcf.

With a close eye on the approaching end of the traditional withdrawal season March 31, the EIA said that if net withdrawals from working gas stocks match the five-year average for the remainder of the withdrawal season, working gas stocks will total 1,406 Bcf, which would be 17% lower than the five-year average. Working gas stocks ended the 2013-2014 heating season at 837 Bcf, which is the lowest reported level for that time since 2010.

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.