With the window for winter closing in three weeks, natural gas bulls are hoping for another run toward the $3 pricing mark.
But while a final burst of cold is forecast before the official start of spring on March 20, it might be much too little too late to tip the market over that target.
Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York, is among those analysts who see limited upside for gas-driven heating demand and pricing through March.
In an outlook written for Friday’s market, Chirichella said:
“The next few weeks are likely to experience colder-than-normal temperatures across the main Nat Gas consuming regions of the country and will result in above-normal withdrawals from inventory.”
Cold Weather Vs Robust Gas Production
But Chirichella also added:
“With production remaining robust and spring right around the corner, the current uptrend which began on Feb. 14 may run out of steam before too long.”
Utilities pulled 166 billion cubic feet of gas from storage for heating during the week ending Feb. 22, the U.S. Energy Information Administration said on Thursday. While that came below the 171 bcf consumption forecast by analysts for last week, it was the fifth time in six weeks that drawdown rates finished strongly in three-digit territory.
The total drawdown of 996 bcf since the week ending Jan. 24 has left just 1.54 trillion cubic feet in storage, accounting for a 22% deficit when compared to the five-year average, and a 9% shortfall to last year’s average.
Market Has Struggled To Peak Since Nearing $5 Highs
Natural Gas Daily Chart
Despite the unusually strong demand for gas-driven heating this winter, the market has been unable to rally back to the near $5 pricing seen in November.
In Thursday’s session, benchmark gas futures on the New York Mercantile Exchange’s Henry Hub settled at $2.739 per million metric British thermal units, posting a 2.7% loss for February.
“The current technical trading range boundaries remain at $2.737 mmBtu on the support side, and $2.90 on the resistance end.”
The tame pricing reflects mixed forecasts that show temperatures likely to be much warmer in the earlier part of spring, after a frigid blast expected in the next couple of weeks.
Heating data from Reuters shows the U.S. had 198 heating degree days for last week, compared with 141 HDDs in the same week a year ago and a 30-year normal of 171 HDDs for the period.
HDDs calculate the number of degrees a day’s average temperature is below 65 Fahrenheit (18 Celsius). The measure is used to estimate demand to heat homes and businesses.
Dan Myers, analyst at Gelber & Associates, a gas markets consultancy in Houston, said HDDs like last week’s will be more rare as spring approaches.
Myers wrote in a Thursday report:
“After next week’s cold shot, weather forecasts expect the pattern to ease in the second week of March and lead to more seasonal demand.”
Chirichella concurs with that, saying the next 11-15 day window will likely bring temperatures well below normal temperatures.
“A very cold arctic air mass will overspread the central U.S. this weekend and then advance further into the East and South early next week.”
“The western and central U.S. areas may be cold for a few days while above normal temperatures become possible in the South and East. Some cold is possible in the East later in the period as temperatures may begin to warm up in the western and central U.S.”
The East Coast is the most prolific region for gas-fired heating in the U.S. and essentially determines the highs and lows on Henry Hub futures.
Neutral Views Vs Some Bullish Outlooks
Investing.com’s daily technical outlook has a “Neutral” recommendation on natural gas, pegging a low of $2.724 per mmBtu and high of $2.883 for April gas, the front-month on Henry Hub.
Chirichella is also maintaining a neutral view of the market through March.
“The short-term weather pattern is projected to evolve back to winter-like weather in key parts of the U.S., but it may be too little too late to generate the kind of rally gas bulls want.”
But not all are dour on the market. Some, like Scott Shelton of the ICAP brokerage in Durham, N.C., have a more optimistic outlook.
Shelton suggests wagering bets for summer demand, where gas will be drawn to power air-conditioners instead.
“Perhaps the best way to reflect a view is via long options. I am bullish overall and think that a drop to lower prices may spike volatility, which tells me to be long puts in the summer and long flat price.”