Weekend Weather Forecast Triggers Selloff
On Monday, prices dropped sharply after a weekend weather report showed a warming trend for the 2nd week of February over much of the U.S. The bearish outlook led to a gap lower opening and pushed the nearby futures contract under the $4.00 level.
According to NatGasWeather for February 2-8, “Chilly weather systems will sweep across the Midwest, Ohio Valley, and Northeast with highs of 10s-30s. Most of the western and southern U.S. will be mild and dry with highs of 40s-70s. Overall, national demand will be high the next 6-days, then moderate.”
The Commodity Weather Group reaffirmed the NatGasWeather forecast when they said the 10-day weather outlook for the U.S. turned warmer, potentially reducing natural gas heating demand. Remember that professional futures traders key off the 10-15 day forecasts, so this is a major development.
Production Rebounds as Temperatures Rise
The weather also played a role in the recovery in U.S. natural gas production. When front-month natural gas futures jumped to a 3-year high last Wednesday due to an Arctic blast from a polar vortex, gas wells froze up in Texas and other places, leading to about 50 billion cubic feet of natural gas coming offline, or about 15% of total U.S. natural gas production. With temperatures warming, production rose to 111.6 bcf on Monday, the highest in nearly two weeks. It could even hit a record high over the near-term, with active U.S. natural gas rigs recently posting a 2-year high.
Storage Data Thursday Could Show Massive Draw
Supply and demand will be in focus on Thursday when the government releases its latest weekly storage figures. Traders are anticipating a huge withdrawal due to the extreme cold for the week ending January 30. Last Thursday’s report was bullish with inventories for the week ending January 23 showing a 242 bcf draw, higher than the market consensus of 238 bcf and the 5-year weekly average draw of 208 bcf. Traders will be watching to see if the storage surplus turns to a deficit. Although this may not be important now unless there is another arctic blast, a deficit could impact summer pricing.
