The next two weeks will be a "make-or-break" period for $4/Mcf natural gas prices this winter, and forecasts of warmer-than-normal weather across the eastern US during the period are pointing to "break," energy investment bank Tudor Pickering Holt said Thursday.
"January typically accounts for roughly 25% of winter cold and the outlook for January is not encouraging," TPH analyst Dave Pursell wrote in a note to clients. "This week should be slightly colder than normal," but the near-term outlook through mid-January is not good, he added.
Pursell noted US National Oceanic and Atmospheric Administration six- to 10-day and eight- to 14-day forecasts predicting warmer-than-normal weather east of the Mississippi, with the warmest weather hovering over huge urban demand centers in the Midwest and East.
"The next few weeks matter a lot," Purcell said. "If we get into mid-January and the 15-day weather map still looks normal/warm, then winter is over and $4/Mcf gas in the near term seems like a pipe dream."
In the summer and early fall, TPH predicted gas prices would rise above $4/Mcf as production growth slowed and temperatures were near or lower than normal. "Winter is only 41% complete through last week, which means we have nearly 60% of winter left" Pursell said.
But he's losing optimism this winter's weather can save a $4/Mcf price.
"For the winter in its entirety to be "normal," the remainder of the first quarter must be roughly 6% colder than normal or slightly colder than the coldest first quarter over the past 10 years," Pursell noted. "The odds of a colder-than-normal winter and $4/Mcf gas are fading faster than the Houston Texan's Super Bowl chances." Las Vegas bookmakers Thursday predicted the Texans had a 20-to-1 chance of winning the Super Bowl this year.
"Companies who could have hedged in November when the 2013 futures were $4/Mcf versus $3.40/Mcf currently, are either glad they hedged or looking for the key to the way-back machine," Pursell said.
