In a choppy and abbreviated week of trading influenced by shifting weather patterns and demand uncertainty, weekly cash prices ultimately posted a slight loss.
NGI’s Weekly Spot Gas National Avg. for the Nov. 23-25 period declined a half-cent to $2.325. The market week was shortened to three days due to the Thanksgiving holiday.
Natural gas cash prices advanced 24.0 cents on Monday as a cold shot of winter weather blew into the Great Lakes region and on into the Northeast, bringing chilly rains and snow – and heating demand along with it. But after a cold start to the day, temperatures recovered on Tuesday and demand faded that day and the next. Spot prices posted double-digit losses both Tuesday and Wednesday.
As the trading week closed, PNGTS was down 59.5 cents to $3.760 and Algonquin Citygate was off 67.0 cents to $2.200. Outside of the Northeast, however, prices were up at a solid majority of hubs, with El Paso S. Mainline/N. Baja helping to lead the way, advancing 34.5 cents to $2.805.
Forecasts for the first week of December pointed to colder weather and greater heating demand, a potential boon for spot prices.
“As the market looks ahead into December, weather should turn increasingly supportive,” EBW Analytics Groups said.
But analysts also cautioned the weather outlook was murky deeper into December, and the raging coronavirus pandemic lurked as a wildcard, with further outbreaks likely to follow the holiday, presenting a potential adverse impact on overall gas demand.
Before its final day, November had already set a monthly record for confirmed virus cases in the United States, according to Johns Hopkins University, with increasing levels in more than 40 states.
Futures Rally
Natural gas futures started the week with back-to-back gains, as weather forecasts tilted cooler for early December, with a winter chill expected to dominate much of the month’s first week.
Traders extended the rally through Wednesday after the Energy Information Administration (EIA) reported a withdrawal from storage and signaled the onset of consistent winter heating demand.
The December Nymex contract climbed 12.1 cents day/day to settle at $2.896/MMBtu on Wednesday, its final day as the prompt month. It gained a total of 24.6 cents over the abbreviated trading week.
EIA on Wednesday reported a pull of 18 Bcf from natural gas storage for the week ended Nov. 20. The agency previously reported an injection of 31 Bcf into gas stockpiles for the week ended Nov. 13 and an increase of 8 Bcf for the week ended Nov. 6.
The withdrawal for the latest covered week decreased inventories to 3,940 Bcf and, with more winter weather and stronger heating demand on the horizon, analysts expect that figure to decline the rest of this year well into 2021.
Markets had anticipated the end of injections, but Wednesday’s evidence provided a dose of optimism. The January contract on Wednesday rose 6.1 cents to $2.961 on its final day before moving to the front month.
“We feel these levels are reasonable given the turn in the weather pattern,” Bespoke Weather Services said.
That noted, Bespoke added, “any continued step colder could push January back over $3.000,” yet “a turn back warm would give bears an easy sell…Any material changes are likely to garner a reaction.”
Wednesday Cash
Spot gas prices declined 10.0 cents on Wednesday, as cold air moved out of the East and near-term demand lightened, putting downward pressure on the national average to close the trading week.
NatGasWeather said conditions over the holiday weekend were expected to be mostly benign across the Lower 48, though cold snaps and demand were both expected to pick up over the first few days of December.
The strongest demand in the mid-range forecasts was projected for Tuesday through Thursday, “due to the combination of a cold shot across the Midwest and Northeast” and “a second system tracking across Texas and the South,” the forecaster said.
After those systems push through, “the western, central, and northern U.S. will see a mix of weather systems…but overall warmer versus normal,” NatGasWeather said.
In the Northeast on Wednesday, Algonquin Citygate prices dropped 56.5 cents day/day to an average $1.380, while Tenn Zone 6 200L lost 25.5 cents to $2.045.
In Appalachia, Millennium East Pool shed 47.5 cents to $1.015.
Elsewhere, SoCal Citygate lost 30.5 cents to $3.510, and Kern River declined 21.0 cents to $2.995.
Industrial Demand
Beyond weather in December, Genscape Inc. analysts said Wednesday they were studying the pandemic’s impact on industrial gas burn in the United States. They noted industrial demand dropped last spring and remained subdued into the summer as virus outbreaks and associated business restrictions limited demand in several industries.
Specifically, Genscape data showed industrial demand from April through June of this year averaged 10% below the same period a year earlier, led lower by a 30% decline in gas use in the metals and mining sector, a 25% drop in use for ethanol production and an 11% dip in use for oil and gas production.
“Demand is down again compared to the previous year,” Genscape said, referring to the current wave of outbreaks in November. However, the firm said, the overall decline is less pronounced and likely impacted more by mild late fall weather than the virus – at least so far – potentially a reflection of American businesses adapting to the pandemic.
“Sample demand for ethanol production this month is 5% below the previous year while metals and mining are up slightly,” Genscape said. Demand “for oil and gas production is still down significantly this month but is increasing following a recent jump in production.
“Industrial demand for natural gas could still hit headwinds similar to earlier in the year,” analysts added, “but so far it seems to be holding steady despite a third wave of Covid cases and mandated restrictions.”
