Unexpected cold winds from Canada are pushing their way into the United States, adding dramatically to the risk premium for heating as natural gas sees its strongest weekly withdrawals in a year amid peak winter.
Gas futures on New York’s Henry Hub jumped almost 10% in Wednesday’s trade alone, adding to the 9% built over two previous sessions, as both the European and US GFS weather models shifted to factor in the strength of additional cold, making its way South from Canada.
Those familiar with the weather models and the shifts anticipate that the change will be responsible for adding an impressive 44 billion cubic feet (bcf) to gas demand over the next two weeks should temperatures forecasts prevail.
“The noticeable uplift in expected demand has certainly been noticed by the markets,” said Dan Myers, analyst at Houston-based gas markets consultancy Gelber & Associates, citing Wednesday’s rally.
He added:
“The renewed volatility is a good reminder that winter is not yet over, and additional upside risk does exist in the near term.”
Myers’ remarks came ahead of the weekly update on US gas storage scheduled at 10:30 AM ET by the Energy Information Administration (EIA).
For a fifth week in a row, the EIA is expected to report a blockbuster drawdown of close to or above 200 bcf from gas storage as Americans crank the heat all the way up amid freezing temperatures that have gripped the country from East to West.
The draw consensus for the Feb. 11 week among analysts tracked by Investing.com was 193 bcf.
The “near ~200 bcf withdrawal is still an extremely strong withdrawal, and expectations for a higher than average withdrawal, while already priced into the market, are also contributing” to more bullish action, Myers wrote in a Wednesday email to clients of Gelber & Associates.
Forecaster NatGasWeather concurred with that. “Clearly, colder trends are bullish in the context they will ensure soon-to-be deficits near 250 bcf will increase further in early March,” it said in an outlook carried on industry portal naturalgasintel.com.
Last week’s forecast draw of 193 bcf would compare with the 227 bcf consumed during the same week a year ago and a five-year (2017-2021) average withdrawal of about 154 bcf.
In the prior week to Feb. 4, utilities withdrew 222 bcf of gas from storage.
Source: Gelber & Associates
If the analysts tracked by Investing.com are accurate in their estimates about the storage draws that took place last week, then total gas in inventory is expected to have declined to 1.908 trillion cubic feet (tcf), about 11.7% lower than the five-year average and 17.6% below year-ago levels.
According to data provider Refinitiv, the weather was colder than usual last week, with 175 heating degree days (HDDs), compared with a 30-year normal of 183 HDDs for the period.
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).
Those in the know say last week’s draw was probably heightened by production freeze-offs in gas that came on the back of the intense cold weather across the United States.
Adding to those were drop-offs in Canadian imports—estimated at around 0.6 bcf per day week over week.
In the outlook published by naturalgasintel.com, NatGasWeather noted that the potentially lingering wintry weather across the eastern half of the United States has reversed the gas price freefall from last week.
With prices up nearly 80 cents per thermal unit to above $4.70 the past few sessions, “clearly, the natural gas markets are applauding the added demand,” the forecaster said.
“Are further colder trends enough of a catalyst for prices to again test $5?” it asked.
On the liquefied natural gas (LNG) front, EBW AnalyticsGroup said traders appeared to be turning a blind eye to the incremental gains in export demand.
The firm noted that feed gas demand from US LNG export facilities has exceeded 13 bcf per day in five of the last six days for the first time.
The amount of gas flowing to US LNG export plants rose to an average of 12.7 bcf per day so far in February, up from a record 12.4 bcf in January, as liquefaction trains at Venture Global LNG's Calcasieu Pass export plant in Louisiana enter service.
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.