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Slide, Slide, Slippety Slide: Mild Winter Sends Gas on a Fantastic Voyage

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Natural gas prices have fallen below the $2/MMBtu mark through the spring of 2024 as balmy temperatures and steady production growth create shoulder-month trading conditions.

After starting February at a modest $2.15/MMBtu, the March ‘24 prompt month’s long slide began last week on NYMEX. The contract fell below $2.00 last Wednesday (February 7) and further to $1.86 as of Friday’s close. The slide steepened to start the week, down 7.9% on Monday (February 12) to a $1.76 settlement. The Henry Hub futures strip is below $2 through the 2024 spring; the April ‘24 contract settled Monday at $1.78 and May ‘24 is at $1.90.

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In the Macro Gas Supply and Demand Forecast, East Daley Analytics since October 2023 has been calling for low natural gas prices to finish Winter 2023-24 and into the 2024 shoulder season (see chart). At the time, EDA’s Henry Hub forecast for March ‘24 was $2.67/MMBtu, while many forecasters and the Energy Information Aministration’s (EIA) short-term outlook were well above $3.00.

Weak fundamentals have prevailed, with above-normal winter weather taking center stage to limit demand in an oversupplied market. Winter Storm Heather in mid-January did put a dent in natural gas production, causing monthly output to decline at least 2.6 Bcf/d M-o-M, according to pipeline samples tracked by EDA. But a rapid warm-up and swift supply recovery over the last three weeks have changed the market dynamic, slowing storage withdrawals back to well below the 5-year pace.

For the week ending February 1, EIA posted a -75 Bcf storage withdrawal, an astounding 118 Bcf below the 5-year average withdrawal for the same week. The period featured unusually warm weather that broke high-temperature records across the Midwest and Northeast.

The market is also preparing for weaker storage withdrawals for the week ending February 8 and February 16, when the surplus of gas in storage vs the 5-year average could climb by 130 Bcf to 378 Bcf. Below-normal temperatures could be on the horizon for the February 17-21 period, but the market has shrugged off this development as too little, too late to save the winter.

The latest Macro Gas Forecast projects storage inventory exits March at 1,884 Bcf. Given the weak fundamentals, we believe there is risk to inventories finishing above 1,900 Bcf and further suppressing prices through the 2024 shoulder season. – Jack Weixel.





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