Nymex January natural gas futures traded near unchanged in the week’s closing session, picking up a slight 1.2 cents to a settlement at $2.814/MMBtu. Participants expected the recent blast of cold weather would drive the first substantial withdrawal from natural gas inventories but saw little additional weather-related demand to support sharper gains.
At A Glance:
- January futures tick 1.2 cents higher
- The first triple-digit storage report eyed
- Weather remains an anchor
The front-month contract drifted between a $2.754 intraday low and a $2.844 intraday high before closing Friday on the upside.
Participants on the online energy platform Enelyst noted the contract jumped 6.0 cents at mid-morning. They attributed the significant spike to short covering ahead of the weekend.
Meanwhile, cash markets closed out the week broadly lower. NGI’s Spot Gas National Avg. sank 23.0 cents day/day to $2.630 amid easing demand as temperatures are forecasted to rise through the weekend.
Price Futures Group senior market analyst Phil Flynn said for natural gas, the debate rages on about how cold this winter will be. “That may be a major factor in determining the fate of oil and natural gas,” Flynn said.
The latest weather outlooks from Maxar’s Weather Desk meteorologist Bradley Harvey pointed to a lack of substantial cold that would suggest continued natural gas futures price weakness.
The upcoming six- to 10-day period features a Pacific flow pattern enhanced by a trough over the Gulf of Alaska that would keep temperatures above average from the West to the Central United States at the start, Harvey said.
That pattern would shift to the East and drive temperatures above to much above average in the latter half, while the West would cool back to within a few degrees of normal just ahead of the official start to winter on Dec. 21.
Further out in the 11- to 15-day period, “The details lean warmer based on trends from the Euro model,” Harvey said.
The overall pattern is warmer than usual, with above-normal temperatures expected along the East Coast in the first half of the period and from the West to the Midwest during the second half.
Participants on Enelyst said the forecast ranks as the sixth warmest on record for the first half of December. The same period last year ranked 10th warmest for the period back to 1950 with 355 heating degree days (HDDs).
Demand Drives Losses
Wood Mackenzie analyst David McEver said the weather models Friday showed a loss of eight HDDs day/day because of the warmth. Additionally, McEver said outages across LNG export facilities in the week leading up to Dec. 1 pointed to additional demand erosion.
There was a partial outage at Cameron Train 2 reported on Wednesday and an outage at Sabine Train 2 reported on Thursday, McEver said.
Tudor Pickering Holt & Co. analyst Matt Portillo noted liquefied natural gas feed gas utilization dropped during the week to 95% from 99% (14.5 Bcf/d to about 14 Bcf/d). However, the blast of cold weather through the period contributed to an uptick of 10 Bcf/d to 40 Bcf/d in residential and commercial (res/comm) demand, Portillo said.
The increased demand for heating during the brief cold snap is expected to result in what could be the first triple-digit drawdown from inventories since the titular start of the withdrawal season on Nov. 1.
“Looking ahead to the Dec. 7 print, we are modeling a 108 Bcf draw versus norms of 48 Bcf,” Portillo said.
On Thursday, the U.S. Energy Information Administration (EIA) reported a second round of bearish numbers in three weeks.
The EIA reported a 10 Bcf injection into natural gas inventories for the week of Nov. 24 that was well above the five-year average withdrawal of 44 Bcf and the year-earlier drawdown of 80 Bcf. The build brought total working gas stores to 3,836 Bcf, widening the five-year average surplus to 303 Bcf.
The 10-Bcf injection was 2.0 to 3.3 Bcf/d looser than consensus analyst estimates, according to EBW Analytics Group analyst Eli Rubin.
“While it is tempting to read this bearish surprise as an indictment against an oversupplied market — through Thanksgiving, November-to-date has injected a net 61 Bcf at 98 Bcf looser than five-year normals — demand-diminishing holiday impacts and/or a coming bullish EIA report could lessen the impact,” Rubin said.
He said a bullish argument rests on three main pillars. They include a short-term alleviation of selling pressure leading to a relief rally, production gains to prove smaller than implied by pipeline flow nominations, or a change in weather.
On the weather, Rubin said, “Although market-altering weather shifts may occur, the bearish medium-term fundamental outlook suggests that any short-term technical moves higher could be fleeting.”
Looking at production, early-cycle production nominations Friday were defying a pattern of first-of-month declines, with mild day-over-day gains signaling enduring supply-side strength, Rubin said.
But Gelber & Associates analysts said production has shown less resilience than expected. The firm noted that production dropped by a reported 0.6 Bcf/d to 102.8 Bcf/d Friday. That “likely offset an otherwise bearish fundamentals picture.”
Widespread Cash Retreat
Bearish fundamentals proved out in the spot gas markets as lackluster demand supported by warming through the weekend pressured prices for deals done Friday for Saturday through Monday flow at hubs across the United States.
NatGasWeather said at midday that while a weather system brought rain and snow to much of the East Friday, temperatures would rapidly warm to above average over much of the country Saturday and Sunday.
Also, the West would have weather systems with rain and snow. Still, highs across the northern portions of the country would be above freezing almost everywhere, with readings in the mid-30s to 50s. Comfortable temperatures with highs in the 50s to 80s are forecasted for the south.
Pressured by the warmer weather and typical weekend demand erosion, Northeast hubs continued a nearly weeklong retreat.
After leading the cash markets in early week gains that brought the regional spot price average to $7.870 Tuesday, trade at the Northeast regional hubs extended a losing streak to a third session Friday.
Deals at hubs across the region spanned a range from $1.910 to $4.500, resulting in a 28.0-cent day/day slump in the Northeast Regional Average to $2.690.
Among the day’s most substantial losses were in the Rocky Mountains, where the regional average sank 60.5 cents to $3.230, led by a 79.5 cents loss at Transwestern San Juan to an index of $2.480.
