The natural gas market has gone from being as hot as the furnaces it heated just weeks ago to lukewarm. The move reflects its 18% price drop in one month as the United States transitions from winter to spring weather.
From the second largest gas burn in history for a winter heating week in late February, the market is potentially headed for its smallest consumption of gas since November in data due today.
The weekly update from the Energy Information Administration, due at 10:30 AM (14:30 GMT), is likely to show that US utilities drew down 17 bcf, or billion cubic feet, of supply from gas storage for the week ended Mar. 12.
That would compare with the 52-bcf draw for the week to Mar. 5.
Two weeks prior to that, the EIA reported a drawdown of 338 bcf, which was the second largest volume of gas ever taken out from storage during a week for heating.
That massive consumption occurred during the week to Feb. 19, after a streak of snowstorms blanketed the central to southern United States, including the state of Texas—the epicenter of US energy.
Weather Warmer Than Usual
Last week's weather was warmer than usual with 108 heating degree days (HDDs), compared with a 30-year norm of 141 HDDs for the period, data from market intelligence firm Refinitiv showed.
HDDs, used to estimate demand to heat homes and businesses, measure the number of degrees a day's average temperature is below 65 degrees Fahrenheit (18 degrees Celsius).
For the current week, the weather trended even warmer, Bespoke Weather Services said in a forecast carried by industry portal naturalgasintel.com:
“The pattern maintains its skew in the warmer direction rather solidly, thanks to warmer than normal conditions primarily from the Midwest to East, with the strongest anomalies coming this weekend into the first half of next week.”
“This keeps March on pace to be quite warm…Outside of the two cold weeks in February, this warmer state has been very persistent, and we still believe this continues as we move into April. While not the most important time of year as far as weather’s impact in the natural gas market, warmth is still a bearish component to consider over the next several weeks, until we reach the month of May when we begin to transition to summer and national cooling demand.”
As gas futures on the New York Mercantile Exchange’s Henry Hub slid on Thursday for a third time in four days, Houston-based gas risk consultancy Gelber & Associates told its clients to beware of waning heating demand as winter officially rolls to a close on Mar. 20.
Looming: First Gas Injection Into Storage Since November
The Gelber email, issued Wednesday and shared with Investing.com, also cautioned that the first storage injection of the spring season could come as early as the week ended Mar. 26.
If so, it would be the first gas injection into storage since the week ended Nov. 27.
“It is atypical for injections to begin this early, with injection season usually beginning in early April,” Gelber said.
“Furthermore, the pace at which storage went from the peak of withdrawal season to falling off and ultimately leading to early injections makes for another bearish price driver, moderating prices going forward.”
While the 338-bcf draw from mid-February will remain a high-point for the market for some time to come, Gelber said equally striking was how quickly the cold-snap had moderated within just four weeks.
While not typical, gas injections had occurred early in the past, the consultancy said.
“Late March injections are nothing entirely new and have happened before in both 2012 and 2016, with final withdrawals and cold-weather making irregular final appearances in both years.”
Thus, the spot April contract on Henry Hub, which hovered early Thursday at $2.50 per mmBtu, or million metric British thermal units, was likely to come under further pressure, Gelber concluded.
Earlier this week, the spot contract hit a two-month low of $2.48.
Henry Hub futures are now headed for a fourth straight weekly loss. The last positive close was during the week to Feb.12, when it settled at $3.07. That week, the spot contract also hit a 15-month high of $3.32.
Technicals: Natural Gas Remains A 'Strong Sell'
Further on pricing, Investing.com’s Daily Technical Outlook remains at a “Strong Sell” for the Henry Hub spot contract.
Should the market extend its bearish trend, a three-tier Fibonacci support is forecast, first at $2.49, then $2.48 and later at $2.45.
In the event of a rebound, a three-stage Fibonacci support is expected to form, first at $2.55, then $2.57 and later at $2.60.
In any case, the pivot point between the two is $2.53.
As with all technical projections, we urge you to follow the calls but temper them with fundamentals—and moderation—whenever possible.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.