A day after New York City groundhog “Chuck” predicted an early spring, natural gas traders and investors are looking to February to partially save the broken-down commodity.
Natural gas futures have declined sharply since their November 2014 highs, leaving many to wonder where the winter that was supposed to compete with last year’s winter has gone.
Natural gas futures hit a two-year low on Monday, falling to $2.608 per mmBTu for March ’15 delivery. Buyers came in however as storm Linus hammered the midwest and northeast with a second major snowstorm in a week. Futures rose steadily throughout Monday and overnight into Tuesday. Natural gas futures were at $2.70 per mmBtu on Tuesday morning.
The oversupply conditions brought on by a mild winter thus far have closed the gap for the five year storage levels. Steady and withdrawals throughout February and into March will required to cut into this supply glut. For the week ending January 30, the current early estimate for the EIA’s Weekly Natural Gas Storage Report is -116 Bcf. In 2014, the withdrawal for the same week was -259 Bcf.
Now, traders are asking: Can February weather save natural gas?
Traders are looking to a third major snowstorm to hit the northeast on Thursday and Friday. At the same time, the week of February 8 is expected to warm up throughout the continental United States.
GFS models then show continued below average temperatures in the middle of February, and in the current models, temperatures are extremely cold with some areas seeing unprecedented cold of 20-25 degrees Celsius below normal.
“The new GFS is a lot more widespread with the cold and has most areas from the Mississippi River eastward with temperatures falling to 15 degrees below normal or more,” said meteorologist Jim Southard.
“The market has been disappointed before,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “So far this season, we haven’t seen any sustained cold weather.”
Natural gas seasonal price averages for 5, 10, and 15 years all show a decline in natural gas future prices for the month of February. However, in nine of the past 10 years, natural gas prices for March delivery have risen on the final trading day of the month.
Source: David Stendahl, Signal Financial Group
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