Market balance

NYMEX Henry Hub gas futures cross $4 as US market balance tightens

Strong points

Seasonal peak heating demand of 53 Bcf/d in January

U.S. production down 2.8 10 cfd, or about 3%, since the start of the month

Upcoming Storage Draws Should Exceed Average

Short-term futures prices at the U.S. Henry Hub rallied back above $4 on Jan. 10 as wintry weather pushes heating demand to seasonal highs and the New Year’s domestic output decline persists.

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By mid-term, the short-term gas contract was up about 15-20 cents from its previous settlement to trade around $4.10/MMBtu. In the spot market, prices rose even more sharply to start the week, rising about 30 cents to $4.14/MMBtu, according to data from CME Group and the Intercontinental Exchange.

Over the past month, Henry Hub futures and spot prices have mostly traded below $4 as weak seasonal demand met rising production and storage levels, easing earlier concerns. regarding winter supply.

Since early January, however, a tighter supply-demand balance in the United States has revived bull markets.


Weather, request

In January, temperatures for the population in the northeastern United States averaged just 35 degrees Fahrenheit. In the Midwest – another key region for heating demand – temperatures have dropped to an average of 18 degrees.

Colder weather this month pushed residential and commercial gas demand to its highest level this winter, averaging 53 Bcf/d from Jan. 1 to date. Over the coming week, heating demand is expected to remain above the previous five-year average at nearly 49 Bcf/d, according to data from S&P Global Platts Analytics.

In the latest eight-to-14-day outlook, the US National Weather Service said it forecast a 33% to 50% chance of below-normal near-term temperatures in the northeastern United States and the much of the Midwest, likely providing some buoyancy in heating demand in the days ahead.


Storage, manufacturing

On the supply side, a recent drop in gas production in the United States also hit the market this month, as lower temperatures increase demand for gas storage.

In shale basins across the United States, gas production has been hit hard this month with notable declines in the Marcellus, Permian and Denver-Julesburg. Combined, the recent declines have reduced total domestic production to around 92.7 Bcf/d this month – a decline of nearly 3 Bcf/d since late December.

While production declines in early January are not atypical, according to Platts Analytics, the timing of production rebounds at the start of the year has varied significantly in the past, adding to uncertainty about the potential duration of the recent drop.

As demand increases and production contracts, the outlook for gas storage has also become more optimistic recently.

For the reporting week ending Jan. 7, Platts Analytics projects a reduction of 181 billion cubic feet in inventory. If realized, the oversized withdrawal would reduce inventories to 3.014 billion cubic feet and reduce the surplus to 70 billion cubic feet – from a surplus of 96 billion cubic feet at the end of December, according to data from US Energy. Information Administration.

Current forecasts from Platts Analytics show that the inventory overhang will continue to shrink in the coming weeks, falling to around 35 billion cubic feet by the reporting week ending January 21.