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Natural Gas Slumps Despite Bigger-Than-Expected Supply Drawdown, Polar Vortex

January 14, 2021 at 17:38 by Andrew Moran

Natural gas futures slumped on Thursday, despite a bigger-than-expected supply drawdown and the coming polar vortex that is expected to blanket North America in frigid temperatures. Although prices dropped more than 1% toward the end of the trading week, market analysts are still optimistic about natural gas due to a myriad of bullish factors.

February natural gas futures tumbled $0.036, or 1.34%, to $2.653 per million British thermal units (btu) at 16:10 GMT on Thursday on the New York Mercantile Exchange. Natural gas is trading flat for the week, but it has been on a tear during the first two weeks of the calendar year, surging nearly 5%.

According to the US Energy Information Administration (EIA), domestic inventories of natural gas fell by 134 billion cubic feet in the week ending January 8. S&P Global Platts had penciled in a decline of 123 billion cubic feet. In total, US supplies stand at 3.196 trillion cubic feet, up 126 billion cubic feet from the same time a year ago. They are also 218 billion cubic feet above the five-year average.

Winter temperatures have been subdued so far, but storage withdrawals have trended higher than the five-year average. But cold weather is forecast to return to the US, Canada, and Europe next week.

A polar vortex is when a mass of low-pressure cold air drifts south from the Arctic. Following a two-year hiatus, the polar vortex is expected to return and put an end to the above-seasonal temperatures. Daily highs are expected to hit the freezing mark, and market analysts are warning that the vortex could be worse than what occurred in 2014 when flights were grounded, shoppers stayed inside, and supply chains were interrupted.

If the projections are accurate, it would be good news for natural gas prices since it would boost heating demand.

Meanwhile, Goldman Sachs is forecasting “a perfect bullish storm” for natural gas in the 2021 and 2022 calendar years. The financial institutions cited supply disruptions, shipping delays, strong liquefied natural gas (NG) demand, and tightness in coal markets. Overall, Goldman is predicting a market imbalance by October 2021, leading to an average price of $3.25 per million British thermal units by the summer.

In other energy commodities, February West Texas Intermediate (WTI) crude oil futures were unchanged at $52.91 per barrel. March Brent crude futures fell $0.24, or 0.43%, to $55.82 a barrel. February gasoline futures slipped $0.0074, or 0.48%, to $1.5414 per gallon. February heating oil futures edged up by $0.0036, or 0.25%, to $1.6029 a gallon.

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