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Cold Weather Pressuring Natural Gas Prices

02/24/2014 @ 8:34am

With yet another cold pattern in place, the March Natural Gas contract remains buoyant, with a morning price over $6.30/MMBtu. Looking at NatGas storage, inventory declines through the 14th of the month exceeded 230 Bcf for the sixth time this winter. Before the winter of 2013-14, Bcf weekly withdrawals greater than 230 Bcf had only occurred 12 times since EIA's weekly storage data began in 1994 (EIA).

Working NatGas inventories were 40.3% less than this time last year, a full 33.9% below the five-year average, and 23.1% below the five-year minimum. More drawdown of natural gas stores are likely this week as bitterly cold weather envelops the central and eastern U.S. Both today and tomorrow will feature high temperatures across the Midwest in the teens north to low 30s south, a full 10 to 15 degrees below average.

Wednesday, an Arctic high pressure center departs the Midwest, resulting in a period of strong southwest winds, which should lift most of the Midwest into the 20s and 30s, with teens lingering across far northern areas. This warm-up will be short-lived as yet another Arctic blast arrives from Canada during the day Thursday. Daytime highs will be running 20 to 30 degrees below normal, favoring elevated energy demand and accelerated drawdown. Friday will be another bitterly cold late-winter day with high temperatures still a full 10 to 20 degrees below normal.

As we head toward Saturday, models differ on the magnitude of the cold, with a considerably colder European model when compared with the warmer GFS. Either way, only a gradual moderation trend will be in store through the start of next week, with more in the way of below-normal temperatures. Looking at our teleconnections, we see several interesting and contradictory signals. First of all, the NAO is positive, favoring near- to warmer-than-normal temperatures. Secondly, the AO is also positive, although it will be taking another negative dive the next several days, supportive of a colder-than-normal pattern.

The MJO however is forecast to move through Phase 7 and eventually Phase 8 over the next two weeks, which, climatologically speaking, favors warmer-than-normal temperatures. This could mean a few things. Either the AO is the only teleconnection adequately modeling the cold, or we are on the cusp of a warmer pattern.

Looking out the next two weeks, both the ECMWF and GFS ensembles reestablish ridging across the Pacific Coast and the central/western Atlantic, with a trough across the central/eastern U.S. This should favor a near- to colder-than-normal pattern through at least the first week in March. Aside from a few teleconnections, very few signs indicate a significant warm-up for the frozen and frustrated Midwestern U.S.

Natural gas prices should remain elevated (maybe challenging $6.50), over the next few days, although some moderation in the 11- to 15-day time frame will limit the longevity of these prices as the contract approaches expiration.

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