Welcome to 2025
The NYMEX is holding in tough at these levels as the February front month contract refuses to continue the sell off from last year (that is to say two days ago). Last trade $3.68 US/mm, up five cents (130pm)
The EIA storage report will be released tomorrow. The current consensus is for a withdrawal of -122 bcf for the week ending December 27th. What I find interesting is that nobody is really talking about tomorrow’s storage report.
The news is focused on the frigid weather coming next week. Yes, it will be cold but let’s keep it in perspective. Current forecast for the next two weeks is for 493 Heating Degree Days (247 per week), as compared to 10 year normal for this time of year of 436. However, last January 2024 we averaged about 220 HDD’s per week over the whole of January. I conclude that this cold snap by itself is not enough to make a significant impact on the overall winter storage position. We knew going into winter that there would be some cold snaps. What is important is to monitor for continuous cold; If we have a really long cold snap or multiple cold snaps or if it is so sever that it impacts production (a ‘freeze off’), then that might re-write the predictions for this winter. Anything is possible but probability says we will get through this.
This other news story is some contractual issues with the pipeline from Russian supplies to Europe; Ukraine did not renew an agreement to allow the gas to travel across their territory. While this might impact European gas prices and it will encourage North American LNG export, remember that it takes years to build a new export facility. We will max out what export capacity we have but it will not impact domestic demand in the short term.
The LSEG estimate for natural gas production is 105bcf/day yesterday. This is up from the 103.8 bcf/day average output for December but still just below the record 105.3bcf/day average for December 2023. Producers are almost at a record output. I think that when this frigid weather story runs its course, the next news cycle might be about ‘record natural gas output’. I think that if prices stay up, then producers will respond with increased output.
Remember that price drives output, not policy.