Happy Friday.

Well, it’s cold.  It’s going to be cold.  Everyone thinks it’s going to be cold. Therefore, the market is up. The front month NYMEX February contract was up 25 cents (6.5%) to $3.95US/mm.  This is to be expected since front month reflects near term demand.  We are trading right near the recent highs.

The next three storage reports are forecast to be in excess of -200 Bcf withdrawals. 

A year ago we had a severe cold snap which resulted in a lot of freeze-offs (when the natural gas well freezes up and stops output).  With the combination of falling output and increasing heating demand the storage withdrawal was -326 Bcf for the week ending January 19, 2024.  That was a harsh week.  I am happy to report that so far this January, the freeze-offs have been less severe that last year and less sever than forecast.  Of course, they can get worse going into last week, but we are not seeing anything yet that would compare to a year ago.

Although output has been high so far in January, it has been coming down a bit, but not as bad as it could be. Once this cold snap is over, we ought to see production return.  December 2023 was the largest average daily output on record at 105.3 Bcf/day over the course of the month.  The output on December 2024 was 106 Bcf for that one day.  Output so far this January has averaged 102.6 Bcf/day over the month.  Therefore, I think we ought to see output increase once these freeze-offs abate as producers love these higher prices.

Therefore, I am watching the summer strip very closely.  The Summer 25 strip is up 8 cents to $3.62, which would be a new high for this strip. We have not seen these levels since December 2023.  There is an old expression in commodity trading, “the cure for high prices is high prices.”  If these prices persist then output will rise to meet it and we ought to see a leveling off. I think it will be important to watch how this strip reacts when this cold weather snap breaks and the forecast gets warmer.

[WFG]