NatGas Soars As 45 Million Americans Face Winter Storm Threat

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by Tyler Durden
Friday, Jan 28, 2022 - 03:58 PM

A powerful Nor'easter has put 45 million Americans under winter storm watches and warnings Friday into Saturday from the Carolinas to northeastern Maine. The prospects of the storm and cold weather have sent U.S. natural gas futures soaring Friday morning. 

The National Weather Service (NWS) warned about a "powerful Nor'easter is expected to develop off the Mid-Atlantic coastline on Friday before impacting eastern parts of the Northeast and New England this weekend." Heavy snow is expected across eastern Long Island/New England with gusty winds that could produce blizzard conditions. 

AccuWeather meteorologists believe the storm will strengthen into a "bomb cyclone," a weather pattern we noted on Wednesday that had a very strong possibility playing out across the Northeast late Friday into Saturday. As early as Monday, we told readers multiple meteorologists sounded the alarm on the possible development of the weekend storm. 

Now it appears the storm could dump as much as 36 inches in parts of Long Island and pummel Wantagh to Westhampton with 12 to 18 inches. New York City is on the edge of the storm and could receive six inches or fewer. 

Saturday snowfall rates per hour (at the height of the storm) could exceed 3 to 4 inches per hour in eastern Massachusetts. The latest snowfall total project map shows coastal areas will receive the heaviest snow. 

NWS Boston points out the "exact storm track" has yet to be determined, which means if the storm travels closer to the coast, the heaviest snowfall could occur more inland. 

A cold front is expected to pour into East Coast. We noted parts of South Florida are bracing for a rare freeze that could damage citrus crops on Saturday morning. 

U.S. natural gas futures have risen for the sixth day ahead on prospects of a winter storm and colder weather. Futures for March delivery were up more than 13% to $4.786 around 0900 ET.

We must point out yesterday's epic squeeze in February's contracts ahead of expiration which rippled through later-month contacts (as seen below, highlighted in the orange box). 

Shedding more light on what happened yesterday is Goldman Sachs' Samantha Dart, who told clients Friday that yesterday's squeeze in February's contracts was not driven by fundamentals but a short covering trades in limited liquidity. 

While we don't yet have full clarity on what drove today's 46% rally in US natural gas prices to $6.27/mmBtu during the last 30 minutes of trading before the close, we do not believe it was supported by fundamentals. The more likely explanation is that the rally reflected limited liquidity during short covering trades near the close as the February contract expired. Accordingly, we expect a correction lower from here to align NYMEX gas more closely with physical markets. Assuming 10-year-average weather for the remainder of winter, we maintain our $3.65/$3.45/mmBtu Bal winter/Sum22 Nymex gas price forecast, vs forwards currently at $4.28/$4.29/mmBtu.

Commodity analysts at Rabobank added their take on yesterday's squeeze: 

For example, US natural gas prices leaped 72% overnight before retreating. Thin markets, yes, and a short squeeze into options expiry. Regardless, hardly the kind of calm trading in a key commodity that already-rattled markets wanted to see. And hardly a bearish price signal.

Forecasts are becoming more locked in as this could only mean one thing for folks trying to fly out of the Northeast on Saturday: expect elevated flight delays and cancellations.