Natural Gas Commentary

January natural gas futures were lower Monday, Dec. 12, fading to a $3.218/MMBtu session low and trading only as high as $3.271/MMBtu in early trade, the near month contract settled down $0.063 at $3.254/MMBtu as weather forecasts were revised to include milder conditions that could support a steady widening of the five-year-average storage overhang. Technical support for January natural gas is seen at $3.25, $3.00, $2.75 and $2.50 while resistance is marked near $3.50, $3.75, $4.00, $4.25, $4.50 and $4.75/MMBtu.

The market remains depressed by healthy storage and lackluster demand as traders were greeted in the new week by revised weather outlooks showing the eastern U.S. and a portion of the central region will see above-average temperatures through the upcoming 14-day period.

Hand-in-hand with mild weather, demand is seen only ticking higher driving storage levels down modestly and at a rate below both year-ago and five-year average pulls allowing more natural gas to stay in storage, providing little support for price advance.

Early projections for the U.S. Energy Information Administration’s Dec. 15 storage report covering the week ended Dec. 9, suggest a range of pulls from the upper 80s Bcf to the low 90s Bcf, comparing bearishly to a 142-Bcf five-year average pull and a drawdown of 154 Bcf reported for the same week a year ago. The drawdown would follow a similarly bearish 20-Bcf withdrawal in the week to Dec. 2 that left stocks at 3,821 Bcf, widening the overhang to the five-year average to 307 Bcf.

While storage and the delayed start of cold winter weather in key heat consuming regions drives lower the price of natural gas. The market is also watching a steady decline in natural gas directed rig counts and looking to some indication that the fewer number of rigs searching for natural gas will begin to impede production figures. Baker Hughes Inc. reported that for the week ended Dec. 9, natural gas rigs dropped 36, and now stand at 820, 128 rigs lower than last year’s count.

Additionally, on the production side, early winter production freeze-offs were reported mainly in the West over the report period ended Dec. 7, covered in the EIA’s latest “Natural Gas Weekly Update” issued Dec. 8. The EIA reported San Juan basin production fell 400 MMcf on Monday, Dec. 5, with most of the production recovered Dec. 6. “The production shortfalls this week were relatively minor compared to other major freeze-offs that have occurred in the past,” the EIA said.

While production begins to take some hits, consumption rates are rising despite the overall mild weather across the bulk of the country. The EIA reported domestic consumption rose 18.4% for the week covered in its Dec. 8 report. The largest gains came from the residential and commercial sectors, as well as the electric power sector, according to data.

Day-ahead, spot markets prices were also lower post-weekend, extending losses from the Friday session as the market assessed the revised weather outlooks and lower demand requirements on regional power grids and moved the market down accordingly. Deals at the benchmark Henry Hub were done from the upper $3.00s to $3.10s, off a sharp $.16 in deals done for Tuesday, Dec. 13, delivery with additional pressure from futures’ weakness. In the Northeast, Transco Zone 6 NY traded off an even more impressive $.34 in deals that spanned the $3.40s to $3.60/MMBtu as weather drives demand down.

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About JWM Energy Consultant
Professional Energy Consultant. I advise large energy-users on procurement strategies to reduce electricity and natural gas costs.

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