A mere 11-cent range: that’s what natural gas has been reduced to in the first three days of an insipid spring trading week which has brought some of the blandest weather.
The story could be different for liquified natural gas though, with reports of anywhere between seven and 15 cargoes reportedly stuck in the Suez Canal blockade. If the saga prolongs, it could add upward price pressure to LNG, especially for spot contracts being drawn up now.
More on LNG later, but first on to dry gas.
The first week of spring brought not just the promise of blooming daffodils, but also natural gas prices as benign as the weather.
Natural Gas Pricing A Pale Shadow Of Previous Weeks
The front-month gas contract for New York Mercantile Exchange’s Henry Hub moved between a low of $2.48 per million metric British thermal units and high of $2.59 between Monday and Wednesday, with the median being $2.54.
It was a pale shadow of the trading band of more than 30 cents seen during the middle and penultimate weeks of February, when snowstorms covered a swath of the United States, driving up the burning of gas for heating that sent the Henry Hub to a three-month high of $3.32.
The week ended Feb. 19 saw particularly frenetic trading as Texas, a typically-sweltering state with temperatures as high as 65°F (18.3°C) even during winter, suffered a freeze so bad that oil and gas couldn’t flow in some of the shale basins of the state, which serves as the epicenter of US energy.
With temperatures above 60°F (15°C) since last week in some gas-driven heating markets like New York, there’s been little or no need to crank the heater up indoors. And with peak readings remaining well below 80°F (27°C), there has also been little or no need to turn the air-conditioner on for cooling.
Another Dismal Weekly Gas Draw Seen
The net effect will be another week of dismal gas draws from storage—better perhaps than the previous week but nowhere near levels required to move the needle on prices.
As traders await the weekly gas supply-demand update from the Energy Information Administration, due at 10:30 AM (14:30 GMT) today, the consensus among analysts tracked by Investing.com is for a draw of 25 bcf, or billion cubic feet, from storage during the week ended Mar. 19.
That would be double the drawdown of 11 bcf seen in the previous week to Mar. 12, though nowhere near the 338 billion bcf pull—the second largest in US gas history—seen in the week to Feb. 19 during the Texas freeze.
There were 127 heating degree days last week compared with a 30-year normal of 128 HDDs for the period, according to data provider Refinitiv.
HDDs, used to estimate demand to heat homes and businesses, measure the number of degrees a day's average temperature is below 65°F .
Analysts also said last week may have seen the last withdrawal of gas from storage for the 2020-2021 winter heating season.
The current week may end with an injection into storage instead of 34 bcf, they said.
Said Scott Shelton, energy futures broker with ICAP in Durham, North Carolina:
“I don’t sense that anyone has a strong feel for the balances in the spring. I think many are bullish, but the recent data has been soft and keeps them sidelined and waiting for a stronger signal.”
While chilly rains and regional bouts of cold are in the offing over the next two weeks, Bespoke Weather Services said Wednesday mild weather will prevail across most of the Lower 48 for the rest of this month and into early April.
Weather-driven demand looks “quite low, overall, the next few weeks,” Bespoke said in a weather report narrated by naturalgasintel.com.
“Given the weakness that remains in terms of the supply/demand balance, we can see risk ultimately toward lower prices,” the forecaster was quoted saying.
LNG Spot Pricing Could Soar If Suez Canal Blockade Drags
On the LNG front, Refinitiv ship tracking data showed there were seven LNG vessels stuck in the Suez Canal.
Data intelligence firm Kpler, meanwhile, estimated that as many as 15 LNG vessels, including those with planned transits into the canal, were likely affected. Some of the delayed vessels were destined for Europe and others for Asia, Kpler said.
Powerful winds forced a ship aground on one of the canal’s banks, blocking nearly the entire width of the waterway and producing a large traffic jam in one of the world’s most important maritime arteries.
As of Wednesday morning, more than 100 ships were stuck at each end of the 120-mile canal, which connects the Red Sea to the Mediterranean and carries roughly 10 percent of worldwide shipping traffic.
Shipping insurer Lloyds (LON:LLOY) said the grounding of a similar-sized ship (the 19,000 teu CSCL Indian Ocean on the Elb) in 2016 took six days to refloat.
Reuters reported that the longer the LNG cargoes sit in the canal without moving, the greater the knock-on effect on both spot LNG and European gas prices.
LNG demand has proven a vital offset to weakening domestic needs for natural gas to heat homes and businesses as the spring shoulder season quickly approaches.
Strong European and Asian demand for U.S. exports has kept LNG feed gas volumes near or above 11 bcf per day throughout most of March. Volumes held near 11.5 bcf on Wednesday, not far from the record levels reached late last week, when exports approached 12 bcf, naturalgasintel.com said.
Though customary spring maintenance work could eat into LNG levels temporarily in coming weeks, analysts said depleted supplies in Europe likely will drive ongoing demand for U.S. exports into the summer months.
Shipbroker Fearnleys AS said in a note:
“LNG is strengthening to an extent that may see more Atlantic cargoes flow east,” providing “reason for optimism”.
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.