Natural gas gaps higher with cold weather on the way

Commodities

Another weather-led reprieve for natural gas futures is on the cards this week as US temperatures drop across the board.

Natural gas trading

Another cold-weather report supports natural gas

Henry hub futures gapped higher at the start of the week building on gains made across the weekend.

US natural gas futures finished last week 5% higher and gained another 5% on Monday as cold weather reports flooded in. This is the second consecutive week of cold weather forecasts.

The weather could be colder than usual over the next 8-12 days which is music to natural gas bulls’ ears. Could a proper winter finally be on the way?

Natural Gas Weather reports: “Cold air lingers across the northern ½ of the US with lows of -20s to 20s for strong national demand, aided by chilly lows of upper 20s to lower 40s across the southern US.

“However, national demand will again become light Wed-Fri as a warm break sets up across most of the US with highs of 40s to 70s besides the colder Great Lakes and Northeast where highs will be in the 10s to 40s.

“Another cold shot will sweep across the northern US this weekend for strong demand, followed by another milder break early next week for lighter demand. Overall, national demand will be HIGH through Tuesday, easing Wed-Fri to MODERATE, then back to HIGH Sat-Sun.”

The idea is that prices should stay relatively buoyant now as temperatures drop. However, futures prices are still encountering some resistance.

While they did gain that 5% bump at the start of the week, as of Tuesday morning, US natural gas futures were trading around 2% lower on the day. Henry Hub contracts were exchanging hands for around $4.021 at the time of writing.

We’re still far away from October’s high points. Still, in the short-to-medium term, things could be looking up for natural gas after a tricky December.

US natural gas consumption increases

Consumption of natural gas rose sharply across the US last week, according to the latest available data.

Residential and commercial sector consumption increased by 21.8% as the National Oceanic and Atmospheric Administration reported widespread, below-average temperatures across the central and western United States.

As a result, total US consumption of natural gas increased by 13.3% week over week.

Again, it just goes to show the impact that cold weather has on gas markets.

Examining US natural gas inventories

Thursday sees the release of the EIA’s natural gas stockpiles data for the week ending January 7th.

Ahead of that, let’s take a look at the previous report to see if we can glean any actionable insights into what to expect with Thursday’s report.

Working gas in storage was 3,195 Bcf as of Friday, December 31, 2021, according to EIA estimates.

This represents a net decrease of 31 Bcf from the previous week. Stocks were 154 Bcf less than last year at this time and 96 Bcf above the five-year average of 3,099 Bcf.

At 3,195 Bcf, total working gas is within the five-year historical range.