Natural gas futures take a losing streak as markets take stock of catalysts; Cash prices weaken

Natural gas futures rallied Tuesday, avoiding a third straight loss amid slightly lower production and expectations for higher late-season heating demand. April Nymex gas futures contract gained 12.5 cents day/day and was priced at $2.348/MMBtu. May futures were up 15.4 cents at $2.485.

At a glance:

• The heating requirement remains
• The production level remains stable
• The Freeport recovery is proving to be patchy

Spot Gas National Avg. went in the opposite direction, falling 16.0 cents to $2.370.

Data from the National Weather Service (NWS) showed more bouts of freezing temperatures blanketing swaths of the Lower 48 later this week and again towards the end of March. Those cold spells could hit parts of the West, Midwest and East — a outlook that favored bulls.

However, warm waves are forecast to provide long pauses between dips in freezing conditions across much of the country. This included the remainder of the current trading week, a scenario that weighed on spot markets.

Production, meanwhile, hovered around 99 Bcf/day on Tuesday, about in line with last week’s estimates but about 1 Bcf/day below 2023 highs.

On the bulls’ side, slowing production and late-winter cold weather last week are expected to result in a relatively steep dump with this week’s Energy Information Administration (EIA) inventory report. EBW Analytics Group said the next four prints combined could save more than 100 Bcf from excess storage over the five-year average.

Preliminary estimates provided to Reuters for the week ended March 17 showed an average fall of 80 Bcf. This compares to a decline of 55 Bcf a year earlier and a five year average decline of 45 Bcf. NGI modeled a pull of 76 Bcf.

EIA reported a withdrawal of 58 Bcf for the week ended March 10th. The pressure kept inventories at 1,972 Bcf, a significant excess from the five-year average of 1,594 Bcf.

However, EBW also said that “national supply often falls in winter, only to rebound sharply in spring in a pattern likely to be repeated this year.” This would overlap with off-season weather and could renew downward pressure on futures.

Freeport and finance

The Freeport LNG export facility in Texas, which was shut down by a fire last June, is now working to return to full capacity near 2.4 Bcf/d. Recently it has drawn about 1 Bcf/day from domestic supplies – supporting the price – although the recovery has proved gradual and bumpy. The facility received regulatory approval earlier this month to resume full commercial operations. So far, however, at least one shipment has been canceled due to technical issues, Bloomberg reported.

There is also economic uncertainty in the energy markets as a recession could dampen demand. With inflation stubbornly high and interest rates rising, a long line of economists had been warning of a downturn for months. Then, earlier this month, troubles in the financial sector fueled recession concerns.

UBS Group AG agreed last weekend to acquire struggling competitor Credit Suisse Group AG for more than $3 billion. Among other things, Credit Suisse faced a run on its deposits. This followed the failure of US banks in early March. California’s Silicon Valley Bank failed after depositors left the bank because of its heavy focus on risky tech startups. Signature Bank in New York also failed this month. It had bet a lot on the fragile cryptocurrency market.

Weakness in the banking sector has put financial stocks and some commodities under severe pressure over the past few days, including natural gas futures on Monday.

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Analysts at Goldman Sachs Group said that “bank stress, recession fears and an exodus of investor flows” proved to be a negative factor in energy markets in recent sessions. “Historically, positioning and prices have only gradually recovered after such devastating events, especially long-term prices.”

Technical resistance could also hamper natural gas futures this week.

ICAP Technical Analysis analyst Brian LaRose said Wednesday he wouldn’t rule out immediate monthly pricing below $2.00 before the April contract rolls off the books. “We will be on the lookout for signs of bottoming through the end of the month,” he said.

Soft Spot Pricing

Cash prices fell on Tuesday amid an expected start to mild weather, which is expected to materialize on Wednesday and continue through the trading week.

Drops in the west led to lower spot markets, with Malin down 37.0 cents day/day to average $4.015 and KRGT Rec Pool down 53.5 cents to $4.340.

NWS data this week showed comfortable highs in the 50s to the low 80s across much of the eastern and southern United States, reducing near-term demand.

Still, a wintry storm in the west could spread to the center of the nation by the weekend, and seasonally cold weather could extend into next week in the western United States, boosting demand. Later in the next week, cold conditions could also make its way to the Northeast.

Meanwhile, prices in the Midwest and East lost ground on Tuesday.

Chicago Citygate lost 14.0 cents to $2.050, while Florida Gas Zone 3 fell 18.5 cents to $2.015 and Columbia Gas lost 18.5 cents to $1.730.

Further out, the latest 11- to 15-day (March 31-April 4) forecast from Maxar’s Weather Desk on Tuesday showed a pattern that would yield slightly above-average conditions for the southern Lower 48 and below-average temperatures for the west.

“The forecast is near normal for temperatures from the Midwest to the East,” the forecaster said.