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Natural gas’ falls into the red for another week running.

Natural gas trading

Henry Hub prices start the week on a downward footing

We were asking last week if the natural gas breakout was over. That certainly appears to be the case right now.

Henry Hub futures started the week down 3% on Monday 7th February. The slump continued into Tuesday morning, with futures contracts still down 1.25% on the day, trading for around $4.193.

This is a fairly fair cry from last week’s highs, which peaked at $5.569 on Wednesday 2nd.

Why the slump? Warmer weather forecasts. This is despite the fact the United States is currently dealing with arctic temperatures, even as far south as Texas. Looking forward, and warmer temperatures are on the way.

Natural Gas Intelligence says the 15-day outlook predicts warmer-than-usual temperatures for this time of year.

Weather service Natural Gas Weather has also updated its predictions. The forecaster said on Monday it expected weekly demand to stay high, but that has subsequently been revised.

Natural Gas Weather says: “A messy weather pattern through Saturday as the frigid cold pool retreats into Canada but with a mix of cool weather systems with rain, snow, and highs of 20s to 50s and warmer breaks with highs of 50s to 70s for much light national demand.

“A colder weather system with rain and snow will sweep across the Midwest and eastern US late this weekend into early next week w/lows of -0s to 30s for stronger national demand. Overall, national demand will be MODERATE-LOW through Saturday, then HIGH Sun-Mon.”

While weather is a major determinate for price action, it is not the only factor. Supply and demand is always in play. As it stands, a lot of US natural gas production and transmission infrastructure around the Permian Basin is under snow and ice.

We saw last year the effect the Texan Big Freeze happened when the bitter winter storm rolled through. Supplies slumped; prices went up.

The storm currently hitting Texas is not as strong as 2021’s, but it may play into supplies later next week. There is talk of some Democrats lobbying to cut US LNG exports in order to shore up domestic supply levels, so we’ll see what happens.

Gas rigs were at their highest levels since January 2020 prior to the bad weather hitting Texas. According to Baker Hughes, rig counts rose to 116 operational gas focussed rigs in the week ending February 4th with the addition of a single rig.

Keep an eye on Henry Hub contracts to see what happens.

A quick look at US natural gas inventories

US Working gas in storage was 2,323 Bcf as of Friday, January 28th, 2022, according to EIA estimates.

This represents a net decrease of 268 Bcf from the previous week. Stocks were 393 Bcf less than last year at this time and 143 Bcf below the five-year average of 2,466 Bcf.

At 2,323 Bcf, total working gas is within the five-year historical range.

The next Energy Information Administration report is due on Thursday, detailing natural gas storage volumes for week ending February 4th.

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