US Henry Hub gas futures top $6 as wintry weather, supply concerns linger

Benchmark US gas futures prices rocketed past $6/MMBtu in April 5 trading for the first time since late January as lingering cold weather and persistent supply concerns fueled an aging rally on the NYMEX.

At mid-session high, the prompt-month Henry Hub contract was up nearly 50 cents to around $6.20/MMBtu with a 10-15 cent contango extending out to August. For the winter 2022-2023 futures, prices traded as high as the $6.50s to mid-$6.60s/MMBtu, data from CME group showed.

In the cash markets, prices were up about 30-40 cents across the board with the largest gains registering across the Rocky Mountains and the West, where heating demand could remain elevated over the next week as wintry weather lingers into mid-April.

According to the National Weather Service's latest six to 10-day outlook, states west of the US Continental Divide now face a 60% to as much as 90% probability for below-average temperatures through mid-April.

The cold front is forecast to move east into the Midcontinent in the agency's eight to 14-day outlook, with states as far east as the Mississippi River Valley expected to see below-average temperatures.

Chilly spring weather promises to keep high temperatures in the 40s to mid-50s Fahrenheit across much of the West and the US Midcontinent into mid-April with late-winter heating demand potentially slowing the start to gas storage injection season.

Storage

In the week ended March 25, US storage inventories rebounded from a seasonal low with a 26 Bcf injection lifting stocks to 1.415 Tcf, data from the US Energy Information Administration showed. As of that latest report, storage levels were 244 Bcf below the prior five-year average.

According to storage analysts, the withdrawal season likely is not over. According to S&P Global Commodity Insights projections, wintry weather in late March may have cut inventories by as much as 25 Bcf in the week ended April 1. According to an April 5 survey of analysts by S&P Global, storage levels likely fell about 27 Bcf in the final week of March. The EIA's next storage report will be released on April 7 at 10:30 am ET.

Assuming a 25-27 Bcf drawdown is accurate for the reporting week ending April 1, the US gas storage deficit would widen to 276 Bcf. Based on current weather patterns and demand projections for first-half April, paltry injections of 26 Bcf for the week of April 7 and 48 Bcf for the week of April 14 are expected to leave the existing storage deficit largely intact through midmonth.

As US inventories languish, production is now increasingly central to the US supply-demand story.

Production

On April 5, domestic gas production dipped to an estimated 90.5 Bcf/d, marking its lowest since early February, when a series of freeze-offs cut output across Texas and the US Midcontinent.

After reaching an annual high at nearly 95 Bcf/d in late March, US gas production has tumbled into April with receipts dropping off across the Permian Basin, the Marcellus and the Haynesville. While potentially caused by seasonal pipeline maintenance, the drop highlights the recent volatility in domestic output, which has tested extremes between 85 Bcf/d and 95 Bcf/d this year.

Through the spring and upcoming summer months, production growth will likely play a critical role in determining the strength of US gas prices. As rig counts in the major US shale plays continue to rise, and drilling and completion activity accelerates, the outlook for domestic production looks increasingly bullish. According to S&P Global projections, US output could top 97 Bcf/d by sometime later this year.