U.S. Natural Gas Prices Plummet, Defy 'Polar Vortex 2019'

 The U.S. natural gas market ignored the Polar Vortex 2019 last week and prices have plummeted

This is especially incredible since on Wednesday, total U.S. gas demand easily hit an all time record of 150 Bcf/d, half of which was for heating.

The previous total demand record was January 1, 2018, when we devoured 143 Bcf/d but the market was spared because it was a holiday (i.e., less industrial facilities were in operation).

Up until this past week, U.S. gas demand this January was averaging about 110 Bcf/d.

Although hub pricing spiked to winter highs in some areas such as Chicago Citygate, where the city saw its 2nd coldest day in history, prompt month for NYMEX futures settled Friday at its lowest price since July 23.

Even though we have recently seen the coldest weather of the winter (Arctic Blast and Polar Vortex 2019), gas prices have collapsed 25% over the past 14 trading days. Interestingly, this is in stark contrast to oil prices, which were up nearly 20% and had their best January on record.

Overall, gas prices this winter 2018-2019 have been highly volatile, with daily expirations ranging from $4.84 per MMBtu back in mid-November to $2.73 on Friday. Last winter, gas prices from November 1 to February 1 were in a tighter range of $2.60 to $3.63.

A decreasing gas storage deficit has helped ease supply concerns. Although we now stand at 13%, right before Polar Vortex 2019 we stood at 11% below the five-year average for inventory, compared to 20% below back in early-December after the coldest November since 1976.

Moreover, we knew that Polar Vortex 2019 would only be a two-day event, and a rapid rise in temperatures was widely forecast.

In recent days, many areas in the country have seen record 50 to 60 degree temperature rises

Things have warmed up amazingly quickly: "Long Johns to Short Sleeves: Rapid Thaw Follows Polar Blast."

This helps explains why the market tanked. Heating demand is expected to fall back significantly to below average 45-47 Bcf/d over the next two weeks.

The price collapse is also surprising, however, because the U.S. gas production range has been lowered, now in the 83-85 Bcf/d range, compared to closer to 85-87 Bcf/d back a few months ago. The market has ignored freeze offs and production losses.

With U.S. gas production up a whopping 13% last year, traders have become more confident about supply. EIA has output up another 8-10% this year.

The coming withdrawal is projected at 260 Bcf, compared to the 150 Bcf five year average. This will easily be the highest pull of the year, but still well below the 359 Bcf all time record withdrawal that we had to start 2018, indicating just how quickly temps have already warmed up.

Another rally for gas is slipping away. With a warm start to February, and the final month of winter (March) now being the prompt month, the gas market has its bearish sights on low demand April.