Natural gas fails to hold at $7 after wild week

By Barani Krishnan

Investing.com -- The rodeo in U.S. natural gas came to an anti-climatic finish on Friday with a 5% drop on the day and a rise of a little more than that on the week, after wild gyrations that left traders with little answers on near-term direction.

Natural gas for January delivery on the New York Mercantile Exchange settled Friday’s trade down 37 cents, or 5.3%, at $6.60 per million metric British thermal units. For the week, the benchmark gas contract was up 5.7%. The low for the week was $6.25 while the high was $7.10.

“From all accounts, the NYMEX gas futures market should be muscling higher, However, because several large hedge funds are positioned in largely short positions, they continue to defend those positions by slapping prices down every time they exceed the $7.00/MMBtu area,” gas trading consultancy Gelber & Associates said in a note.

“It’s evident that there’s a major battle between two different camps going on here. Historically speaking, the fundamentals typically always win the war, but until NYMEX gas futures can successfully climb into the $7.20s/MMBtu area and trigger a sizable short-squeeze, more big up-and-down price action can be expected.”

The volatility in gas prices heightened on Thursday after the U.S. Energy Information Administration said in its weekly report that local utilities pulled 50 billion cubic feet, or bcf, from storage for the just-ended week to Dec. 9. That was more than double the previous week’s 21-bcf draw, even with heating demand indicated to be less colder than normal for this time of year.

Analysts tracked by Investing.com had anticipated a draw of 45 bcf from storage during the week ended Dec. 9.

There were around 137 actual heating degree days, or HDDs, for the week, lower than the 30-year normal of 160 HDDs for the period, according to Reuters-associated data provider Refinitiv.

HDDs, which are used to estimate demand to heat homes and businesses, measure the number of degrees a day's average temperature is below 65 Fahrenheit (18 Celsius).

“It was warmer than normal over most of the U.S. besides the cold Northern Plains, Northwest and Northern Rockies,” NatGasWeather said, commenting on the EIA report.

A revision in weather reading models on Wednesday also caused a 5-day rally in gas to unravel. Prior to that, the US Global Forecast System, or GFS, and the European model ECMWF had persistently shown the potential for a near-record cold period to last through the end of 2022.

Still, weather forecasters warn that an oncoming polar vortex, or Arctic winter blast, could make this the coldest December since 2010. For the record, the last polar vortex occurred in 2014. Weather records show similar cold outbreaks prior to that, including several notable freezes in 1977, 1982, 1985 and 1989.

“On the weather front, it’s about as bullish as it can get,” the Gelber note on Friday said. “Other than the current Arctic intrusion that is now in play, there is more supportive weather emerging, which has been brewing for the last few days in the models. It does not appear that there will be a meaningful warm-up in the central and eastern regions of the US following the present major cold outbreak.”

The consultancy said the gas storage report for the coming week to Dec. 16 could well show a drawdown of 75 to 95 bcf.

“With the incoming winter blast, it wouldn’t be out of the question that over the next three weeks, there may be well over 500 bcf of storage gas withdrawn,” it added.