Natural Gas: Short Cold Poised To Bring New 4-Year Low
Investing.com | Feb 27, 2020 10:21
In Aesop's fable, the satyr, or protagonist, declares he cannot trust a man who blows hot (to warm his hands) and cold (to cool his food) with the same breath.
Natural gas bulls might find that lesson in Greek mythology sobering as the weather deceives them again, with forecasts that have turned warm so soon after last week’s cold.
Get The App
Get The App
As market participants await the U.S. government’s weekly gas dataset due at 10:30 AM ET (15:30 GMT), the consensus from Investing.com’s analysts is that utilities across the country pulled 151 billion cubic feet from storage last week to provide heating during a particularly freezing spell.
Get The App
Big Weekly Draw Coming Up/h2
If true, it would be the biggest draw from storage since the 201 bcf that utilities burned for power and heat generation during the final week of January that coincided with another icy blast.
The 151 bcf forecast for last week will also be higher than the average burn of 122 bcf seen over a five-year period for the week ended Feb. 21.
Yet it will be lower than the 167 bcf drawn during the same week a year ago.
More importantly, warming trends in the weather suggest that last week’s draw, as well as this week’s, could be among the last big ones in triple digits before the cold season wraps up a month from now.
End-Season Inventory Spike Certain/h2
Get The App
“At this point in the season, the level of coming cold is not enough to bully storage and prevent it from ending the season at a surplus,” said Dan Myers, analyst at Gelber & Associates, a gas risk consultancy in Houston.
Get The App
And what exactly could that end-season surplus be?
Get The App
According to an outlook released earlier this week by the U.S. Energy Information Administration, gas in storage is expected to end the 2019–20 winter heating season at 1.935 bcf, with 12% more inventory than the previous five-year average.
Get The App
The EIA also forecasts that gas in storage will hit record highs by end-October as a result of the combination of a mild winter and unbridled output in the fuel.
Get The App
This raises the question of what impact that mild weather and higher storage projections will have on gas prices.
Get The App
Prices Point To New 2016 Lows /h2
As of Wednesday, the March gas contract on the New York Mercantile Exchange’s Henry Hub managed to cling to the $1.80 support level before expiry.
But April futures, the new gas benchmark from Thursday, has already lunged under the $1.80 handle and could bring the market even lower to 2016 lows if it snaps the $1.752 trough set on Feb. 11.
“The winter trade for gas looks set to return to four-year lows,” Myers said.
Get The App
Could the weather get better for gas bulls?
Get The App
Not much of a chance of that, says Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York.
“Temperatures should start the 11-15 day period near to somewhat below normal across the Central/Eastern U.S. before warming up significantly later in the period,” said Chirichella.
From Weather To LNG Cargoes, No Escape For Gas Bulls/h2
While temperatures will be “seasonable” in the West, weather patterns elsewhere were volatile, coming in cooler at first and much warmer later in the Central/East.
Get The App
To complicate matters, readings on the GEFS — or Global Ensemble Forecast System made up of 21 separate forecasts — were colder compared to the ECMWF — or European Centre for Medium-Range Weather Forecasts.
Get The App
“Given how this winter has trended, betting on the warmer end of guidance is probably going to be the smart money,” said Chirichella. “This still looks to springboard into a spring-like 16-30 day period.”
Get The App
And it’s not just the weather that’s hurting the take up of U.S. gas.
Get The App
Get The App
The coronavirus crisis that has crippled much of China’s energy demand could also hit deliveries of U.S. LNG — or liquefied natural gas — cargoes to Chinese buyers.
Get The App
“Further having a negative impact on the market is the potential for a back-up of LNG cargoes from the U.S. earmarked for China,” said Myers.
Get The App
“If the main manufacturing cities in China remain in quarantine/slowdown demand for LNG will remain low.”
Get The App
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.