Chilly Temperatures Ahead Push Natural Gas Stockpiles Toward 4-Year Low

  • Erratic winter weather has frustrated bears and bulls alike
  • Last two winters saw surpluses; U.S. levels this year are down

The prospect of another mega-drawdown in U.S. natural gas inventories is stoking speculation that storage levels may drop to a four-year low by winter’s end.

Stockpiles of the fuel may end March at 1.32 trillion cubic feet, according to the median estimate of eight analysts and traders surveyed by Bloomberg News. That would be 23 percent below the 5-year average for the end of March. Gas futures, meanwhile, surged 13 percent on Tuesday to a 13-month high. 

On Thursday, the U.S. is poised to report a large supply drop for last week. While temperatures have been erratic this winter, frustrating bulls and bears alike, fresh forecasts show more bone-chilling air ahead for the second week of February. That should draw inventories down even further, analysts say, resulting in new price increases.

Heating Up

Gas stockpiles may drop to a four-year low of 1.32 trillion cubic feet in survey

Source: EIA historical data; Bloomberg News survey projections for Jan. 19-March 31

“It’s been an erratic winter,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

The analyst-trader estimates ranged from 1.15 trillion to 1.49. The five-year average for March 31 is 1.7 trillion.  

The timing of Tuesday’s price boost was a bit of surprise, coming days after the cold weather had ended, Chirichella said. Although it was probably encouraged by the February contract expiring in a few days, “it seems to me to be more of an inventory play more than anything else right now,” he added.

Gas futures for February rebounded by 35.5 cents this week to $3.54 per million British thermal units at 10:48 a.m. Wednesday on the New York Mercantile Exchange after touching $3.628 the previous evening, the highest intraday price Dec. 2016. February gas touched a 50-cent premium to March, the most for this time of the year in exchange data going back to 1990.

With the move in gas futures concentrated in the February contract, which expires on Jan. 29, the market “needs to get through” the major weekly storage event on Thursday before triggering a decisive push in either direction, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.

There “could be a very wild ride between now and Monday” as more bulls enter the market as large inventory draws may cut end of winter storage estimates even more, he said.

One key place to watch is if March futures rise along with the premium to April, which marks the start of the seven-month stockpiling season. Momentum for that appears to be picking up this week.

“The market has gotten hurt so many times over the last six months that the long-side traders when they see early forecasts they are gong to wait until it gets closer to get a little more confidence,” Chirichella said. “If we get another arctic blast, we could push our way above $3.50 for the March contract.”

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