Traders Shift Focus from Northeast Cold to Nationwide Warming

Traders continued to monitor the weather just weeks after a major Polar Vortex led to a huge draw in storage and pipeline freeze-ups in Texas and other regions. This time, traders had one eye on the cold hitting the Northeast and the other on warming temperatures. Looking at the Northeast is proving to be a waste of time since that cold will be leaving soon. Although it did impact cash prices, futures traders chose to ignore it.

Bearish 10-Day Outlook Trumps Backward-Looking Data

Rather than look backward, natural gas traders are looking toward the future and the near-term outlook is bearish. According to The Commodity Weather Group, “above normal temperatures are expected across the Midwest and South through February 20.” Analysts at Natgasweather.com piled on, saying overall national demand will be up through the weekend then on the light side next week.

Record 360 bcf Withdrawal Fails to Spark Buying Interest

The bearish weather outlook probably best explains Thursday’s muted reaction to the massive withdrawal from storage the week ended January 30. According to the Energy Information Administration (EIA), natural gas inventories fell by a record 360 bcf. The number was less than the consensus forecast of -375 bcf, but it flipped the market 1.1% below the 5-year seasonal average, signaling tighter natural gas supplies. Nonetheless, traders showed little reaction to the figures.

Worries about production also weighed on prices. U.S. lower-48 dry gas production on Friday was 112.6 bcf/day (+6.2 y/y), according to BNEF. Lower-48 state gas demand on Friday was 104.5 bcf/day (+11.0% y/y), according to BNEF. Estimated LNG net flows to US LNG export terminals on Friday were 19.6 bcf/day (+6.2% w/w), BNEF reported.

Production Worries Mount as Active Rigs Hit 2.5-Year High

Prices fell hard intraday on Friday after Baker Hughes reported that the number of active U.S. natural gas drilling rigs in the week ended February 6 jumped by 5 to 130 rigs. With the number of active rigs now at a 2.5 year high, traders fear higher near-term gas production.

Technical Breakdown Looms with Support Zones Under Pressure