Natural gas in 5th week of freefall that has more than halved its value

By Barani Krishnan

Investing.com -- Five weeks running and the bulls in natural gas aren’t catching a break yet from the weather.

Futures of the heating fuel on the New York Mercantile Exchange’s Henry Hub fell 5% in the latest week, adding to their 48% drop over four previous weeks, as temperatures in the Northern Hemisphere remained unseasonably high for a winter.

Natural gas bulls are experiencing one of their most painful months ever, after the start of what the industry is calling the warmest winter in two decades.

The front-month February gas contract on the Henry Hub settled on Friday at $3.174 per mmBtu, or metric million British thermal units. It fell to a new 19-month low of $3.11 during the session, sending gas bulls up gasping for air on fears of the market tumbling to $2 levels. Fortunately, for the longs, the moment passed, with the $3 support holding.

Analysts say there is still time to fix the market, but Mother Nature has to cooperate — and quickly.

“There is still the remainder of January, as well as the months of February and March, left to go before the end of the winter withdrawal season, therefore, weather will still play a large role in the bullishness or bearishness of NYMEX gas futures prices,” analysts at Houston-based energy trading consultancy Gelber&Associates said in a note to their clients in natural gas.

“But without meaningful, extended cold periods in the longer-range forecasts, it sets up end-of-season gas storage to potentially land in notably bearish territory by April 1,” the note said.

Gelber’s analysts observed that through the initial 2.5 months of the winter withdrawal season, natural gas inventories have fallen by a total of 760 bcf or billion cubic feet — which was 213 bcf bearish versus the five-year average.

“Even with the potential for at least another two sizable bearish withdrawals on the horizon, unless there are some big surprises from Mother Nature over the next few weeks, the 2022-23 winter will retain its position as the smallest to-date draw in the last five years well into February,” the analysts said.

Gas production, comparatively, is up more than 5 bcf per day year-over-year.

The conventional wisdom on the Henry Hub is that in order for the bulls to find upward trajectory, February needs to come in colder than average, culminating in at least one more 200-plus bcf storage withdrawal this season.

Another bullish catalyst would be if the Freeport LNG terminal — closed for months now, stalling consumption of 2 bcf per day or 60 bcf per month — resumes full operations by February, putting back on course exports of liquefied natural gas.