Cold Snap, Bullish Storage Expectations Fail to Send Natural Gas Futures Higher; Spot Prices Steady - Natural Gas Intelligence

Cold Snap, Bullish Storage Expectations Fail to Send Natural Gas Futures Higher; Spot Prices Steady - Natural Gas Intelligence
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Cold Snap, Bullish Storage Expectations Fail to Send Natural Gas Futures Higher; Spot Prices Steady

Natural gas futures probed higher early Monday, with bulls seizing upon favorable near-term weather, steady export demand and market expectations for a seasonally robust inventory withdrawal. But intensifying stress in the global financial system ultimately curbed the momentum and left futures in the red as markets closed.

At A Glance:

- Mixed weather outlook
- All eyes on Freeport LNG
- Bank system worries mount

The April Nymex gas futures contract settled at $2.223/MMBtu, down 11.5 cents day/day. May also fell 11.5 cents to close at $2.331.

NGI’s Spot Gas National Avg. slipped 2.0 cents to $2.530 ahead of a break from cold weather.

Monday futures trading extended losses from Friday. The prompt month lost 4% last week.

NatGasWeather said American and European weather models heading into Monday trading agreed on the timing of swings in national demand the next two weeks, “starting with strong demand to open the week after frosty weather systems swept across” the country over the weekend. This, the firm said, supported prices early Monday.

Both models also showed another chilly weather system racing across the northern United States March 27-29 for “a modest bump in national demand” before more spring-like temperatures arrive.

“What will also be closely watched this week is if U.S. production holds under 100 Bcf/day, and if Freeport LNG export flows increase to 2 Bcf/day, either of which would aid in tightening the balance,” NatGasWeather said.

The Freeport liquefied natural gas export plant in Texas, forced offline last summer following a fire, has this month made strides in its reboot efforts, adding roughly 1 Bcf/d to the demand equation. At full capacity, it could draw 2.38 Bcf/d from domestic supplies.

At the same time, Bloomberg’s production estimate hovered around 99 Bcf/d on Monday – off from recent highs above 100 Bcf/d.

“Natural gas producers have widely indicated neutral-to-slowing upstream activity in response to the early 2023 price collapse, particularly in the Haynesville Shale,” said EBW Analytics Group’s Eli Rubin, senior analyst. “Although it is too soon for many recently announced changes to medium-term drilling plans to appear in weekly rig counts, we anticipate the broad trend of decelerating output gains later this year.”

The combination of tighter output and increased demand is widely expected to result in a bullish storage print with this Thursday’s Energy Information Administration (EIA) inventory report. Early draw estimates submitted to Reuters for the week ended March 17 averaged 80 Bcf. NGI modeled a 76 Bcf decrease. That compares with a pull of 55 Bcf a year earlier and a five-year average decline of 45 Bcf.

A steep storage pull would mark a notable change from bearish prints through most of 2023 amid overall mild weather. Most recently, EIA reported a withdrawal of 58 Bcf for the week ended March 10. The five-year average for the period was a pull of 77 Bcf.

Inventories stood at 1,972 Bcf as of March 10, well above both the year-earlier level of 1,451 Bcf and the five-year average of 1,594 Bcf.

Financial Follies

Despite Monday’s early gains, analysts said the factors that pressured futures last week – looming spring weather and widespread market pressure following multiple bank failures – were bound to re-emerge and hamper prices. Stocks, crude prices and other commodities also dropped last week.

“The broader financial turmoil of the past week and collapse in oil poses further risks for the broader energy complex,” Rubin said.

Analysts at The Schork Report agreed. “The entire commodities complex went into panic mode as the second-largest bank failure on record conjured up reminiscences to the antecedents of the Great Recession,” they said of recent trading.

Earlier this month, regulators shuttered Silicon Valley Bank when depositors bailed on the bank after learning of its outsized exposure to risky technology start-ups. It was the second-biggest bank on record to fail. Then, Signature Bank in New York, weakened by risk-laden bets on cryptocurrency, also failed. It marked the third-largest failure on record. Silvergate Bank, another crypto-centric institution, this month said it would self-liquidate.

Financial sector troubles are not isolated to the United States. Over the weekend, Swiss finance giant UBS Group AG agreed to acquire troubled rival Credit Suisse Group AG for more than $3 billion. Regulators brokered the deal to soothe fears that a Credit Suisse meltdown – driven by a run on its deposits — could rattle the global financial system. The deal represents the first merger of megabanks since the 2008 financial crisis.

“UBS’ takeover of Credit Suisse, coming off the back of the failure of regional lenders in the U.S., has kept funding concerns elevated in markets,” said Innes McFee, Oxford Economics analyst.

That noted, he said banks on the whole are much stronger than during the past crisis. “Fundamentally,” McFee said, “liquidity and capital ratios in the banking sector…are strong and have been tested against theoretical economic downturns and depositor runs.”

Cash Prices Mixed

Spot gas prices dipped lower nationally Monday but surged in the West amid lingering cold there.

PG&E Citygate in California jumped $2.805 from Friday to average $9.725, while SoCal Border Avg. gained $1.285 to $4.895.

In the Southwest, KRGT Del Pool rose $1.970 to $6.050.

Meanwhile, in the Rockies, Opal advanced 70.0 cents to $4.810 and Northwest Wyoming Pool gained 57.5 cents to $4.335.

NatGasWeather said cool to cold weather spanned most of the Lower 48 on Monday, with low temperatures ranging from around zero to the 30s across several regions.

The firm said national demand would ease to light levels Wednesday through Friday as a warm ridge builds over the southern and eastern United States with highs of 50s to 80s.

However, new weather systems were forecast to arrive in the West and Plains late in the week, delivering fresh rounds of rain, snow and freezing air. NatGasWeather said these conditions were expected to spread south and eastward before the end of the coming weekend for stronger national demand.

Another round of cold shots is in the cards during the final week of March, the firm said, though more benign spring weather could soon follow. Monday marked the official start of the spring season.

AccuWeather meteorologists said a high pressure system that originated in northern Canada has driven the late-season cold bursts across much of the Lower 48. That system is expected to gradually lift and, aside from some late-March chills, could gradually open the door for more widespread spring weather by the end of the month and early April.

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