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Natural Gas: After 4-Year Low, Early Spring Might Be The New Worry

By Investing.com (Barani Krishnan/Investing.com)CommoditiesJan 30, 2020 11:34AM ET
www.investing.com/analysis/natural-gas-after-4year-low-early-spring-might-be-the-new-worry-200502970
Natural Gas: After 4-Year Low, Early Spring Might Be The New Worry
By Investing.com (Barani Krishnan/Investing.com)   |  Jan 30, 2020 11:34AM ET
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Winter 2020 still has seven weeks left to go and the weather has been cold enough lately in most U.S. regions heated by natural gas. Yet, in what could be another blow for investors awaiting higher gas prices, forecasters now warn that warmer “spring-like” weather could arrive earlier this year.

U.S. gas futures have lost 16% cumulatively in three weeks, though the front-month gas contract on the New York Mercantile Exchange’s Henry Hub itself has seen some support, hovering at $1.87 per million metric British thermal units versus the four-year low of 1.80 per mmBtu struck on Jan. 19.

Natural Gas Futures Weekly Price Chart
Natural Gas Futures Weekly Price Chart

With the U.S. Energy Information Administration expected to report a higher draw from gas storage for the week ended Jan. 24, expectations have risen among gas bulls in recent days that the front-month contract could rise and hold above $1.90 — and perhaps make a return to the psychologically important $2 level.

Mild Conditions Forecast After This Week’s Cold

But dashing those hopes are new forecasts published Wednesday showing mild warmer conditions might return to key gas-fired heating zones.

Some analysts are even betting that early “spring-like” conditions might be felt in some patches by the time the NFL Super Bowl is played this weekend, on Sunday, Feb. 2. Spring officially does not start till March 19.

“Forget the Groundhog!” wrote Phil Flynn, senior market analyst for energy at the Price Futures Group in Chicago, in a note Wednesday. “Early spring means that on Super Bowl Sunday, the Groundhog will predict an early spring.”

Bret Walts meteorologist at BAMWX, said that while the cold-bias has been on for more than a month, “we would generally expect to continue to see data trend warmer over the next few days.”

Nice Taste of Early Spring?

Adds Walts:

“We do not see good signals right now to support any extended cold and we favor warmer than normal temperatures for the Eastern U.S. to continue into mid-February. Some areas early next week in the Southeast U.S. to Ohio Valley could get into the 60s and 70s (Farenheit) for a nice taste of spring!”

Two other analysts — Dan Myers at Houston-based gas risk consultancy Gelber& Associates and Dominick Chirichella at the Energy Management Institute in New York — have similar views.

“Weather forecasts for next month currently project a mild first half February, particularly in population centers of the eastern U.S,” Myers said on Wednesday. “Without assurance of a significant invasion of cold on the horizon, and ample gas in storage thanks to a benign winter so far, the market is further discounting the end of the peak season.”

Chirichella says that while weather models showed some extreme cold anomalies into the interior of the U.S. West and High Plains, “the model trended a bit warmer across the Eastern U.S., showing more significant warm anomalies.”

Risk of Even Lower Gas Prices

So, what does this mean for gas prices?

David Thompson, vice president at Powerhouse, an energy-focused research and trading group in Washington, thinks $1.60 levels may be coming before the winter is through.

“We’ve kept breaking through prior lows, prior significant lows,” Thompson said in an interview with naturalgasintel.com published Wednesday. “It’s been an unmitigated slide lower all the way through this winter.”

From a technical standpoint, Thompson said bulls will want to defend Henry Hub’s most recent low of $1.83.But a break below that “opens the door down into the $1.60s, those lows from 2016,” Thompson said.

Brief Upside Likely From Impending Storage Report

Despite such pessimism, Henry Hub’s front-month might see some supportive action on Thursday after the release of the weekly EIA gas storage report, due at 10:30 AM ET (15:30 GMT).

The consensus among analysts is that the EIA will report that utilities drew 195 billion cubic feet of gas from storage during the week ended Jan. 24.

That would be more than double the previous week’s draw of 92 bcf. It would also outstrip the 171 bcf consumption seen during the same week a year ago and the five-year (2015-2019) average withdrawal of 143 bcf for the period.

Myers said there was even the possibility for a pull as high as 200 bcf due to last week’s sudden uptick in heating demand and expected reduction in gas production.

“However, following this draw, there will be a stark return to smaller storage decreases with the reappearance of mild weather extending into early February.”

But Draws After This Will Disappoint Again

Underscoring Myers’ view, an early Reuters poll for the current week showed a draw possibility of just around 105 bcf, versus 228 bcf from the same week last year and 143 bcf on the five-year average.

Last week’s outsize draw came amid a surge in the number of heating degree days (HDDs), which are used to calculate heating demand for homes and businesses based on temperatures averaging below 65 degrees Fahrenheit (18 Celsius). Last week, there were 198 HDDs, on par with a 30-year average of 200 HDDs for the period, and way above the previous week’s 138 HDDs.

U.S. gas production was also estimated to have retreated from recent record highs last week, averaging just 94.1 bcf per day in the lower 48 states, versus the prior week’s 94.6 bcfd.

Despite the cold snap, bigger gas draw and lower production, total gas left in storage last week was still estimated to be higher than year-ago levels and historical five-year averages.

According to estimates, if the EIA reports the 195 bcf draw expected by the market, total gas stockpiles would still stand at 2.752 trillion cubic feet — 7.8% above the five-year average and 23.9% above the same week a year ago.

Natural Gas: After 4-Year Low, Early Spring Might Be The New Worry
 

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Natural Gas: After 4-Year Low, Early Spring Might Be The New Worry

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Comments (8)
Blue Oval
Blue Oval Jan 31, 2020 8:21AM ET
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If this is all true, why did jt ever get as high as it has in the first place?
Green Greta
GreenGreta Jan 30, 2020 9:48PM ET
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Ouch ouch ouch. I'm outta money. I will keep loaning every dime down to break even earlier. They can't keep it down forever. Winter has been a massive disappointment and the forecasts have been horrendous in predictions.NG is as bad as my ex.
Jan 30, 2020 2:08PM ET
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U.S. LNG producers fear more price drops as they await China buys under Phase 1 deal
Barani Krishnan
Barani Krishnan Jan 30, 2020 11:47AM ET
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Hi all, looks like the EIA came in at the top of expectations for the Jan 24 draw, reporting 201 bcf that cross the magical 200 mark. But we're down 2%, so market obviously isn't hot about the number. Love to hear more of your thoughts.
Jose Emenis
Jose Emenis Jan 30, 2020 11:47AM ET
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The natural gas market is being shorted by the Wall Street bankers, Goldman Sachs, and the hedge fund managers. They're trying to drive the natural gas producers out of business in order to steal their large tracts of land for pennies. Just like they stole millions of acres of land from Native Americans for $24 worth of trinkets.
Barani Krishnan
Barani Krishnan Jan 30, 2020 11:47AM ET
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Jose Emenis  That's a very good insight which we will not hear in most mainstream media. Hopefully, a Congressional session will be held to investigate this, though collusion for this purpose will be hard to prove.
Eric Haberman
Eric Haberman Jan 30, 2020 8:56AM ET
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short with everything you've got
Barani Krishnan
Barani Krishnan Jan 30, 2020 8:56AM ET
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That seems to be the strategy for many, though the EIA did top the upside of analysts expectations for the Jan 24 draw.
Jose Emenis
Jose Emenis Jan 30, 2020 8:40AM ET
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We have an overabundant supply of prescription drugs in America. Why does the cost of prescription medicine increase 200% every year?
Barani Krishnan
Barani Krishnan Jan 30, 2020 8:40AM ET
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Good question, but I'm not sure it's for this forum.
Ивайло Стоев
Ивайло Стоев Jan 30, 2020 4:58AM ET
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After 1.60 $ can we see 2.5 $ this winter?
Barani Krishnan
Barani Krishnan Jan 30, 2020 4:58AM ET
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Depends. If there forecasts for late and extended cold, then for sure.
Darryl Parvin
Darryl Parvin Jan 30, 2020 4:06AM ET
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It's only going to get worse. I've been told there's 4x more gas available than there ever was oil. The Russians have an almost endless supply.
Barani Krishnan
Barani Krishnan Jan 30, 2020 4:06AM ET
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Darryl, I'm with you on that.
Mike Roland
Mike Roland Jan 30, 2020 4:06AM ET
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tons of gas in South America and Canada to boot
Barani Krishnan
Barani Krishnan Jan 30, 2020 4:06AM ET
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Yes, that seems to be the case too.
Nick Mi
Nick Mi Jan 30, 2020 4:06AM ET
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There is enough oil for 300 years, by then, oil will be more than obsolete. By your rationale, oil should be free
Barani Krishnan
Barani Krishnan Jan 30, 2020 4:06AM ET
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Nick Mi  Nothing is, of course, free -- Economics 101. All the rest are saying here is, there's little consumption of gas now due to abundant supply and anemic heating demand, and the only way to possibly to get it moving more -- say through liquefaction into LNG -- is to make it even more price competitive. It's a hard sell, unfortunately.
 
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