Northeast Cold Snap Could Spike Demand and Flush Out the Weaker Shorts
March natural gas, the nearby futures contract, climbed last session as traders anticipated colder temperatures starting February 22 and extending into February 25. This system is centralized in the Northeast, according to NatGasWeather and could extend into parts of Florida, although not to the extent of the late January cold. Nonetheless, we could see a temporary spike in demand that could chase out some of the weaker shorts.
Any Rally Is Likely to Be Short-Lived — and a Gift to Professional Hedgers
After this jump in prices early in the week, traders will focus on the onset of milder spring temperatures and the shoulder season, where demand falls and production rises. Any rally is likely to be short-lived, however, and a new shorting opportunity for professional hedgers.
Bearish EIA Report and Tight Storage Keep the Market Sensitive to Weather Shifts
We’re seeing a mixed demand picture at this time. With the exception of this current short-term cold front, demand has been light and is expected to drop even further as we head into March. Last Thursday’s Energy Information Administration (EIA) storage report was bearish on paper. Natural gas inventories for the week ended February 13 fell by 144 Bcf, which was a smaller draw than forecast. It was also lower than the five-year average draw of 151 Bcf. Natural gas storage is down 1.5% year-over-year and about 5.6% below the five-year seasonal average. This means natural gas supplies are tight, making the market more sensitive to shifts in the weather. However, as we head into the summer season, this gap is expected to fill.
Record Production and a 2.5-Year High in Active Rigs Will Fill the Supply Gap
Higher production will fill the gap. On Friday, production was 113.4 Bcf/day, about 12.5% higher year-over-year. Production is expected to remain strong due to the recent jump in active rigs. Baker Hughes reported no change in the number of active rigs on Friday, but the current figure sits at 133 rigs, a 2.5-year high. Traders should also be keeping an eye on LNG demand, which is climbing.
More Information in our Economic Calendar.
