Natural gas plumbs 21-month low as weather forecasts show bottom still away

© Reuters.

By Barani Krishnan

Investing.com -- There are signs the weather in the United States may be getting frightful at some point. But they don’t seem to be coming quick enough to jolt the bears driving the selloff in natural gas futures.

The front-month March gas contract on the New York Mercantile Exchange’s Henry Hub plumbed a 21-month low on Monday when it fell to $2.646 per mmBtu, or metric million British thermal units — a bottom not seen since April 2021.

With 90 minutes to settlement, the benchmark gas futures contract was at $2.721, down 12.8 cents, or 4.5%, on the day.

Temperatures in New York were forecast to reach below the freezing point of 32 Fahrenheit (0 Celsius) this week, with Friday at 11F and Saturday at 24F, in a breakaway from the prior week’s highs of above 50F.

Such temperatures typically signal that there will be huge draws from natural gas inventories by utilities seeking to provide adequate warmth to the top gas-fired heating market in the United States.

Even so, there was a weakening in the intensity of Arctic winds that could temper the actual chill on the ground, according to forecasts by the U.S.-based Global Forecast System, GFS, and the European ECMWF weather models which are more closely followed by gas traders.

“Presently, the GFS and the European ECMWF models are touting a decline in the amount of accumulated Gas-Weighted Degree Days (GWDDs) over the current two-week period,” said Gelber & Associates, a Houston-based consultancy for energy traders.

“At this juncture, the polar air that has been amassing over northern Canada will not cascade down into the lower 48 states, similar to the late December winter event. Only a small pool of frigid temperatures will plunge into portions of the Northeast and New England in the near-term outlook instead of dominating most of the nation,” the Gelber note said.

The March gas contract on the Henry Hub showed relative stability toward the end of last week when it moved just a cent at Friday’s close from Thursday’s settlement of $2.848.

That led to the notion that the market may have bottomed from the six-week selloff that took the front-month contract to $2.761 on Thursday.

But Monday’s renewed plunge in March showed short-sellers behind the 60% plunge in natural gas pricing since the week ended Dec. 9 weren’t done yet.

“At the current crossroads, gas market bears remain in the control of the driver’s seat and could be targeting the $2.60/mmBtu to $2.50/mmBtu area as a downside objective for NYMEX March 2023 natural gas futures in the near term, due to the milder near-term temperature outlook,” Gelber’s analysts said.

Due to weak consumption, U.S. gas in storage stood at 2.729 tcf, or trillion cubic feet, at the close of the week to Jan. 20, up from the year-ago level of 2.622 tcf, according to a weekly update provided by the Energy Information Administration.

The meltdown in gas pricing came after an unusually warm start to the 2022/23 winter that led to a collapse in demand for heating fuels. Prior to the selloff, the Henry Hub’s front-month hit 14-year highs of $10 per mmBtu in August, and even traded as high as $7 in December.