Natural gas down 7%, back to Buckin-Bronco mode on new forecasts for warmth

By Barani Krishnan

Investing.com -- Barely 24 hours: That’s how long the upside in natural gas lasted as new forecasts for winter warmth sent the heating fuel back to mid-$3 pricing.

The February gas contract on the New York Mercantile Exchange’s Henry Hub settled at $3.639 per mmBtu, or metric million British thermal units, on Tuesday — down 27 cents, or 7% on the day.

The move down came after Monday’s initial rally of 11% and final gain of 5.4% for February gas. Week to date, the benchmark gas contract is about 2% off, adding to the 52% drop over three prior weeks.

“Market bears are back at it again with continued selling of NYMEX front-month natural gas futures,” Houston-based energy markets consultancy Gelber & Associates said in a note issued Tuesday. “Sellers are back in control, sending prices falling into the low-$3.30s/mmBtu as market players focus on the next ten days of unseasonably warm temperatures across the U.S.”

After explosive upward price action for the most of 2022 from weather extremities and a supply squeeze caused by political and other disruptions to Russian gas output in the aftermath of the Ukraine invasion, natural gas futures suddenly collapsed December onwards. The downturn was due to unseasonably warm winter temperatures since last month that left both the European and U.S. heating markets sufficiently supplied.

Weather readings suggest the potential for more downside price action in gas amid forecasts showing the likelihood for exceptionally mild temperatures across the United States through mid-January, the Gelber note said.

“According to the Global Forecast System (GFS) and the European (ECMWF) models, the near-term temperature outlook continues to be about as bearish as it can get for mid-January, with daily gas storage withdrawals that are slated to be bearish versus the five-year average for about two weeks,” the consultancy said.

Exports of LNG, or liquefied natural gas, have also been tamped down with the continued shutdown of the Freeport liquefaction facility in Texas, which has idled about 2 bcf, or billion cubic feet, of gas per day.

“For gas market bulls, it would also be helpful for Old Man Winter to dole out some colder conditions across Europe,” Gelber said. “Similar to the U.S., following the late December winter event, European temperatures have been exceptionally mild for the last couple of weeks.”

Benchmark European gas prices on the Netherlands’ TTF point have been trading at $21-$24 per mmBtu, a far cry from the $80-$100 mmBtu range seen last summer.

“Looking ahead, it’s not out of the question that NYMEX gas futures could return back to $5 [per] mmBtu or higher, but it will require lots of Arctic air to dominate the nation for multiple weeks,” the Gelber note added. “Conversely, if there are any regressions in the weather forecast models toward a more extended period for warmth, it would set the stage for NYMEX gas futures to possibly test new lows.”