The NYMEX March contract expired today at $3.864 US/mm.
The contract hit a high of $4.476 last Thursday, and sold off to a low of $3.906 on Monday. Then Tuesday buyers came in a bid it up to $4.186. The story I read (and it makes sense to me) is that there was a large open Put option position at the $4.00 strike. Market Makers (the big players in the market) bid the contract above $4.00 yesterday so that those contracts would expire worthless (Tuesday was expiry for the March options). Then today, the market settled below $4.00. In short, it was just expiry antics at NYMEX and should not affect your physical position since you should have already purchased for March delivery.
April is now the NYMEX front month and April was down 16 cents today as the more normal weather takes hold. Not only is the forecast back to normal levels for this time of year, but those normal levels are steadily climbing as we get into Spring. I remember that the two-week forecast for HDDs back in January were 500+, but today the two week forecast is 277. HDDs stands for Heating Degree Days and represents how much demand there will be for heating. It is a proxy for demand since so many homes are heated with natural gas. In addition to demand falling off, the freeze-offs from last week (when poorly insulated natural gas wells freeze and reduce supply) are in the rear-view mirror and producers can finally realize some profit from these high prices.
Tomorrow’s EIA storage number for the week ending February 21st is expected to be -266 Bcf, which is not surprising when you consider that Enbridge has been restricting storage withdrawals all of last week. However, looking ahead to the actual March reports, we should be seeing closer to -40 Bcf than these current levels.
The Summer strip closed down 12 cents to $4.24 so we still have some work to do there. I am hopeful because US producers would have achieved a record output for February if not for the freeze-offs. March might achieve that record, and the weight of that production might weigh prices down. That being said, anything can happen in Natural Gas so always be flexible.
Expectations for tomorrow’s storage report is a withdrawal of -266 Bcf in the lower 48. Stay tuned.
