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Natural Gas Gets Little Winter Love Amid Balmy U.S., Summer-Like Europe

Published 01/05/2023, 04:44 AM
Updated 08/14/2023, 06:57 AM
  • Unseasonable temperatures for the U.S. over the next fortnight, could stretch to February
  • Switzerland, Poland, Hungary, France and Germany also see warmer-than-usual weather 
  • Weekly U.S. gas storage due today could be bullish due to strong late Dec heating draw 

Gas bulls’ worst fears may have come true: Two weeks into the winter, and the U.S. feels like it’s in mild fall. Those in Europe, meanwhile, could be excused for thinking that the summer never went away.

Blame it on global warming or Vladimir Putin’s aspirations for a European freeze that has yet to happen. Whatever the case, natural gas, the primary fuel for heating in most Western countries, is getting little love at this time of the year on both sides of the Atlantic due to unseasonably high temperatures.

Hundreds of sites in Europe, from Switzerland to Poland, have seen their winter temperature records go awry in the past fortnight. Hungary registered its warmest Christmas Eve in Budapest and saw temperatures climb to 18.9 degrees Celsius (66.02°F) on Jan. 1.

In France, where the night of Dec. 30-31 was the warmest since records began, temperatures climbed to nearly 25°C in the southwest on New Year’s Day while normally bustling European ski resorts were deserted due to a lack of snow.

The Weather Service in Germany, where temperatures of over 20°C were recorded, said such a mild turn of the year had not been observed in the country since records began in 1881.

Czech Television reported some trees were starting to flower in private gardens, while Switzerland’s Office of Meteorology and Climatology issued a pollen warning to allergy sufferers from early blooming hazel plants.

The temperature hit 25.1°C at Bilbao airport in Spain’s Basque country. People basked in the sun as they sat outside Bilbao’s Guggenheim Museum or walked along the River Nervion. Bilbao resident Eusebio Folgeira, 81, said in comments carried by Reuters: “It always rains a lot here, it’s very cold, and it’s January, (but now) it feels like summer.”

In the United States, forecasters said expectations are high for unseasonably warm weather to continue into next week and the week after that – potentially stretching into February.

The result is a price plunge in gas futures, with an intensity not seen in a while. On the New York Mercantile Exchange’s Henry Hub, they tumbled beneath the $4 marker to touch lows not seen in almost a year.

In Europe, benchmark Dutch gas fell below $75 — down more than 50% from a month ago and plumbing a trough not seen before the start of the Ukraine war in February.
Europe’s natural gas storage surplus versus the five-year average is hovering near 549 billion cubic feet -- or bcf.

European gas storage stocks remained above 80% capacity in the first week of January. Should this trend continue, European inventories could remain so well supplied that they might negatively impact U.S. exports of liquefied natural gas, or LNG, to the E.U.Gas Demand for LNG ExportsSource: Gelber & Associates

Houston-based energy markets consultancy Gelber & Associates said in a note to its clients in natural gas on Wednesday:

“The biggest driver behind the price weakness is that the near-term temperature outlook through mid-January lacks any meaningful below-average temperatures and is nearly devoid of any Arctic air.”

But what does this particularly mean for the Henry Hub?

It could mean more temperature-related snafus that could extend the pain of NYMEX gas bulls for another week said Gelber, adding:

“Because of this, the underlying supply/demand imbalance has shifted to the bearish side of the spectrum as projected daily natural gas storage withdrawals will remain bearish versus the five-year average through at least Jan. 12.

As such, it will be a hard-fought battle for estimated gas storage to fall below 2,700 billion cubic feet by mid-January, while it’s not out of the question that the storage deficit versus the five-year average could transition to a surplus in the same timeframe.”

Market participants will know later today what the storage picture for U.S. gas is looking like when the Energy Information Administration, or EIA, unveils its latest inventory report for the final week of 2022, ending Dec. 30.

In an anomaly to the warmth market participants are feeling, the EIA is expected to report that U.S. utilities likely pulled 228 bcf, or billion cubic feet, of natural gas from storage last week, drawing over twice the usual amount in the wake of a winter storm, a Reuters poll showed on Wednesday.

That compares with a withdrawal of 46 bcf during the same week a year ago and a five-year (2017-2021) average decline of 98 bcf. In the week ended Dec. 23, utilities withdrew 213 bcf of gas from storage.

The forecast for the week ended Dec. 30 would cut stockpiles to 2.884 trillion cubic feet (tcf), about 9.8% below the same week a year ago and 6.9% below the five-year average.

There were around 196 heating degree days (HDDs) last week, which is higher than the 30-year normal of 186 HDDs for the period, according to data provider Refinitiv.
HDDs, which are used to estimate demand to heat homes and businesses, measure the number of degrees a day’s average temperature is below 65 Fahrenheit (18 Celsius).

Expectations for this relatively-bullish draw were what put a floor under the free-falling Henry Hub gas market on Wednesday, with the front-month February contract settling up more than 18 cents, or nearly 5% on the day, at $4.172 per mmBtu, or metric million British thermal units. Prior to that, February gas lost almost $1.30 over five days of trading, crashing below the $4 per mmBtu support on Tuesday.

But this EIA gas storage update could be followed by more bearish inventory reports due to conditions that would dampen demand and ease pressure on supplies in storage.
Mizuho Securities’ director of energy futures, Robert Yawger, said in comments carried by naturalgasintel.com that traders “are betting that 2023 storage will post smaller numbers in coming weeks that reflect the warm temperatures across the U.S., with a good chance storage switches to a surplus to the five-year average.”

What would be the price impact on the Henry Hub then if storage reports turned bearish again?

Said Sunil Kumar Dixit, chief technical strategist at SKCharting.com:

“As long as NYMEX gas prices sustain below the $4.23-$4.49 band, we expect bearish pressure to extend a little more to reach a range of $3.78-$3.50.

Consolidation from support areas can initiate a rebound towards $4.23, which upon finding buyers, can establish support above $4.50. But further upside will require firm acceptance at above $4.50.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about. 

Latest comments

Sorry to say reading those articles won't help you make profit in trading commodities, over and over again
They are not meant to make you money you self centered st🤡upid s o b
 You mean piece of rotten meat!
I think the facts and news you summarized in the article had been all well known by the big players, and works like a bait for retailers to get in.
What's interesting here is that NG (on its current trajectory) is on track to fall way below the 5 year band, and yet NG is selling off like it's no longer being used. I can't help but think there are some traders who went massively long, thinking it was easy money, and now are so desperate to unload their positions, they're destroying the market. Once they've dumped, and booked all their losses, I'm wondering, if this trajectory continues, we should have a big bounce back.
Bulls always says, that the declines are caused by short sellers. Shorters states, declines are caused by bagholders selling every pops.
There goes madman Putin's plans for blackmail.
Also look at NG today
We did bofoon
when NG was trading at 6.1 he wrote about polar vortex and how it will be positive for NG, look at NG now. Really good.
Before commenting, you really need to know how to read first. That story, which appeared on Dec. 15, was primarily a question as to whether a polar vortex was coming, based on forecasts that were valid then. See the question mark in the headline? It's something regularly used in market copy to question the likelihood -- or otherwise -- of a development flagged by forecasters. If you read that copy properly -- which I believe you rarely do with anything other than skim headlines -- you'd have noticed this: Are we seriously looking at a polar vortex this December that could be as bad as in 2014? That’s what some weather forecasters had been alluding to, explaining the unbroken week-long rally in natural gas that lasted through Tuesday. But a tempering of that outlook on Wednesday, amid the notion that the weather could actually be less frigid than thought, broke the back of that rally.
Bravo, Barani!
he is perfect contra indicator, yesterday only he wrote about gold resistance at 1925$ when gold was 1870$ , giving hope to buyers look at gold now. haha
Sarcasm works only if you have the wisdom for it. Sitting on your rear and taking cheap shots at people like Sunil Kumar Dixit, who provides the bulk of the chart reading we do on commodities, is well, "cheap", especially when he has been spot on with gold technicals on so many occasions. Before you try and get smart again, go read that gold piece more closely and you'll find this key guide:  In the near-term, spot gold’s weekly stochastics at 98/94 indicate overbought conditions calling for a temporary rebalancing and correction toward support areas, Dixit said. “As long as prices sustain below $1,850, spot gold is likely to crawl downward retesting the previous week's close of $1,824.” “If spot gold breaks below 1,824, expect a retest of the 5-week EMA of $1,813, followed by the 100-week SMA of $1,798,” he said, referring to the Exponential Moving Average and the Simple Moving Average markers.
I am following your articles since 2020 and each time your contra indicator works like that only. Remember is Copper is 4.8$ top for the Copper? rest what happened we all know.
 This again shows that you only read headlines and never what's contained within the analysis which often explores all price variables and likely action. The headline is a representation of the consensus made by forecasters. I typically quote a bunch of people in the stories I write, for a broader canvas of opinion. You can see from the disclaimer I have at the bottom of my analyses. A headline built on consensus can be on target and can also be off, depending on market dynamics. What's more important, at least to the bulk of readers interacting with me, is the different inputs within the story from people whom I cite, which includes technicians like Dixit and others. It's amusing that you're holding on to my $4.80 top for copper when the record high itself wasn't too far -- at $5.04 and we've broken lower ground since. Anyway, when you're bent on finding fault, I guess you'd never see the better side of things, as they were intended to be.
Excellent your excellency. The warmest winter in many blood moons. It is a good day to sacrifice a bull to the gods. 👌👏✊💪🤙👍
LOL, thanks, Jay. We seem to have more fair-weather Gods these days :)
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