Can Natural gas get back on its feet?

Henry Hub traders are looking for clarity this week as natural gas looks to find its footing following a lacklustre weekend performance.

Natural gas trading

Natural gas futures look to recover lost ground

Two weeks ago, natural gas was trading in a fairly stable environment. Cold weather forecasts were supporting February’s futures contracts. Prices were looking to break the $5.00 ceiling. Things have changed since then.

As of Monday 24^th January, Henry Hub futures contracts had slumped. The prior weekend bought woes, pushing the price down below $4.00. At the time of writing, on Tuesday 25^th, US natural gas futures had gained around 0.4%, trading for $3.835.

Why the recent slump? A combination of late-week jitters caused by supplies and weather forecasts.

At the tail end of last week, when futures lost more than 5%, traders were operating on the assumption that US gas demand was potentially peaking. Supplies were perceived to be enough to meet current heating requirements.

Forecasts have indeed been choppy.

At the start of the week, Natural Gas Weather predicted that weather patterns would lead to high-to-very high demand across the continental United States. Now, the outlook has changed.

Natural Gas Weather states: “A messy pattern continues as numerous weather systems impact the US. One system is over the Northwest, a second tracking through the Southwest, and a third over the Southeast.

“Temperatures with the Northwest system will reach the 50s to 70s, while the southern ones are warmer w/highs of 80s. The rest of the US remains nice to warm with highs of 60s to 80s besides locally hotter 90s Southwest deserts and portions of Texas.

“Weather systems with valley rain and high elevation snow will continue into the West next week with highs of 40s to 60s, while warm to very warm elsewhere w/highs of 70-80s. Overall, national demand will be LOW to VERY LOW into the foreseeable future.”

It is true that supplies were flat across the US last week. But with two extra gas rigs coming online during the same period according to Baker Hughes, more gas could start flowing across the country.

However, extra rigs coming online may be to cater for international LNG markets, to which the United States is a big supplier. A recent Wood Mackenzie report suggests the need for liquid natural gas globally will be high in 2022, especially in Asian markets, with the US determined to capitalise on its export potential.

Still, it’s tough to draw a bead on the state of US gas demand. Conflicting weather reports mean pricing March’s futures contracts is becoming trickier. As such, prices are in flux. Traders will be looking to meteorological services for clarity.

The state of US natural gas inventories

Also clouding the supply outlook was last week’s natural gas inventories data. A fairly significant drawdown was seen in the EIA inventories report for the week ending January 14^th.

According to the energy agency’s data, US working gas in storage was 2,810 Bcf during the review period. This represents a net decrease of 206 Bcf from the previous week.

Stocks were 226 Bcf less than last year at this time and 33 Bcf above the five-year average of 2,777 Bcf. At 2,810 Bcf, total working gas is within the five-year historical range.

The next set of EIA reports is due for publication on Thursday. Perhaps traders will find more guidance there.