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James Hyerczyk
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Natural Gas

Natural gas futures surged on Tuesday as reports of power outages and production freeze-offs due to extremely cold weather conditions shocked the Gulf Coast. Natural Gas Intelligence (NGI) reported that several states in northern Mexico were impacted by the storm as natural gas shortages shut generators and left more than 4 million customers without electricity for hours on Monday.

At 19:35 GMT, March natural gas futures are trading $3.113, up $0.201 or +6.90%.

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NGI also reported that “a handful of midstream companies had already begun reporting issues at some of their gas plants on Thursday and by Friday, some pipelines were reporting operational issues. New England’s Algonquin Gas Transmission experienced an unplanned outage on the Mainline that prompted the pipeline to reduce the operating pressure by about 5% between Cromwell and Burrillville compressor stations until the issue is resolved.”

“The polar air had already reached Texas overnight, and wellhead freeze-offs were starting to surface in West Texas and southeastern New Mexico, where RBN Energy LLC said Permian Basin production fell 1.5 Bcf day/day on Friday.

EBW Sees Limited Upside Potential for March Natural Gas Futures

EBW analysts noted that prices for the March contract had “solidly broken through an important resistance point” at $3.05 as of early Tuesday but were “struggling to move past $3.10.” The extreme cold, combined with the prospect of the next Energy Information Administration storage report showing a withdrawal of more than 250 Bcf could open the door for a test of resistance at $3.20, according to the firm.

“By next Sunday, though, total demand is expected to fall 35-40 Bcf/d from recent peaks,” the EBW analysts said. “Further, the March contract is trading at a premium to summer and fall, which is not tenable. The odds favor, therefore, a decline in the March contract by next week.”

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Short-Term Outlook

It’s important to note that most of the scary news is affecting the spot market so unless you’re in the natural gas industry, you have to be careful chasing prices higher because it’s extremely cold outside now.

If you’re a bullish speculator then you are essentially betting against the new forecast calling for warmer temperatures at the end of the month.

At this time, the current forecast says Arctic air is expected to hold over the Midwest, central Lower 48 and Texas for several more days “before finally ejecting towards the East…However, there’s still a milder break setting up” over much of the country starting around next week through February 28, NatGasWeather said.

Still, the firm added that “this break isn’t quite as mild as what the data showed a few days ago,” and the American and European weather models both “tease another round of below temperatures arriving into the U.S. March 1-2, initially into the Rockies and Plains but potentially spreading eastward after.”

For a look at all of today’s economic events, check out our economic calendar.
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