Commodities & Futures News

Natural gas closes at June 2021 lows as bulls cling to $3 support



 

By Barani Krishnan

Investing.com — The draw from U.S. natural gas storage was larger-than-expected, but not enough to bump the fuel’s prices up from 19-month lows.

The front-month February gas contract on the New York Mercantile Exchange’s Henry Hub settled down 3.6 cents, or 1%, at $3.275 per mmBtu, or metric million British thermal units, on Thursday. That was the lowest close for a front-month gas contract on the hub since June 22, 2021, when it settled at $3.258.

Earlier in Thursday’s session, February gas fell to as low as $3.203 — narrowing to just a little over 20 cents its cushion from a drop to the $2 range. U.S. gas futures have not traded below $3 since May 2021. For what it’s worth, they are down about 20% since the beginning of 2023 and off 15.5% when viewed on a year-over-year basis.

The latest slide came despite the Energy Information Administration, or EIA, reporting that U.S. utilities drew down 82 bcf, or billion cubic feet, from national gas storage last week for heating purposes — more than the 71-bcf draw forecast by analysts tracked by Investing.com.

“What’s being asked of those who are long on gas is pretty heavy now: That the weather gets back to winter-normal cold pretty quickly,” said John Kilduff, partner at New York energy hedge fund Again Capital. “And that’s something that gas bulls simply have no control over.”

Near-term outlook for the weather is mixed, even confusing. Major weather forecast models, including the U.S.-based Global Forecast System, or GFS, and Europe’s ECMWF model, expect a colder near-term temperature outlook by the final week of January. Above-normal Gas-Weighted Degree Days (GWDDs) are also expected to emerge around January 25 and possibly linger well into February.

Even so, the GFS is downplaying the intensity of the looming winter weather event and is depicting a rather average Arctic air mass instead of the impressive chill that swooped as far south as Houston, Texas, in late December, ushering in temperatures in the teens.

Other weather models, such as the Canadian (GEM) and the CFSv2, are factoring in Siberian temperatures that are 80 degrees below zero that could plunge deep into the U.S. The amount of GWDDs for the period of January 18-31 is the third most for the period in the last five years, which is a notable improvement from the first half of January, which saw record mild temperatures in most regions.

Forecaster NatGasWeather said Wednesday in a blog that ran on naturalgasintel.com:

“Overnight data maintains very light national demand the next three days, light this weekend into the start of next week, but still strong demand Jan. 26-31. However, the outlook in the latest model runs was simply not as impressive with the amount of cold into the U.S. and also not as aggressive in advancing subfreezing air into the southern and eastern U.S.”

In a Thursday blog on the same site, some analysts noted that production has been strong this month – above 100 bcf/d – while mild weather across large swaths of the Lower 48 U.S. states depleted heating demand.

“Demand has significantly underperformed,” naturalgasintel.com quoted one analyst at Enelyst as saying. “Essentially, the need for storage has gone way down.”

The blog noted that the latest decrease in gas inventories had lowered the storage level to 2.820 tcf, or trillion cubic feet. This compares with the year-earlier level of 2.839 tcf and the five-year average of 2.786 tcf.

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