Natural gas futures on Monday lost ground, succumbing to weaker fundamentals as production notched another all-time high and early winter warmth deflated demand. The December Nymex gas futures contract settled at $3.264/MMBtu, down 25.1 cents day/day. January fell 23.1 cents to $3.564.
The session’s 7% slide followed a topsy-turvy week that saw trading lower three days out of five before finishing up 3.2 cents week/week.
Those gains were fueled in part by last week’s early winter cold freeze, felt as far south as Texas, that may have been enough to tilt gas in storage to its first withdrawal of the season. But the weather has turned warmer and is modeling warmer than normal for much of the month into Thanksgiving — adding downward pressure on cash prices.
NGI’s Spot Gas National Avg. fell for a fifth straight session, down 38.5 cents to $1.915.
A milder dose of cold is forecast to return into the weekend across the Midwest and Northeast with some cooler air descending down into the Plains states and north Texas, NatGasWeather said. But the effect on demand will be limited. The cold front will get demand back to seasonal levels and then quickly make way for warmer temperatures across most of the United States early next week, the firm said.
Meanwhile, production keeps pushing higher.
Criterion Research LLC estimated that U.S. production rose to an all-time high of 104.6 Bcf/d on Saturday, its vice president of Research James Bevan said. “It’s come off that peak but was still high with today’s evening cycle nominations. The previous record was 103.8 Bcf/d, so this was a significant jump.”
The Saturday output came as the Haynesville Shale pushed to an all-time high of 16.7 Bcf/d on Saturday, and Appalachian Basin production — very strong since late October — has held above 35 Bcf/d for the past four days, according to Bevan. South Central averaged around 54.6 Bcf/d, up 0.4 Bcf/d of last week’s average run, he said. Going forward, the end of the traditional maintenance season could limit daily drop offs in output, he added.
Some estimates for Saturday were even higher. Wood Mackenzie modeled 104.9 Bcf/d. All of the estimates are subject to revision.
Supply/Demand Picture
Against rising supply, attention should also be paid to the record volumes of gas leaving the United States, StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI.
“I would couple the record supply with the record demand,” he said. “I think a lot of people don’t realize how much is being exported when you add both liquified natural gas and Mexico.”
LNG feed gas volumes have mostly held above 14 Bcf/d this month and hit a six-month high on Nov. 1, according to NGI’s LNG Export Tracker. Exports to Mexico were estimated at 5.5 Bcf for Monday, Bloomberg said.
Against this backdrop of record supply and demand, the U.S. Energy Information Administration (EIA) on Thursday reported a net injection of 79 Bcf natural gas in storage for the week ended Oct. 27. It landed near the 81-82 Bcf median builds in analyst surveys and the 82 Bcf build modeled by NGI. It also topped the five-year average of 57 Bcf but was below the 99 Bcf injection recorded by the EIA a year earlier.
The increase boosted inventories to 3,779 Bcf, 205 Bcf above the 3,574 Bcf five-year average.
Early estimates for the week ended Nov. 3 are split between a small withdrawal and build. Markets will be “anxiously waiting to find out how last week's frosty cold shot impacted supplies, with many expecting the first draw of the season,” NatGasWeather said.
But traders have to wait a little longer to see the print — after the EIA conducts a systems upgrade on Nov. 8-9, EIA plans to release data on Nov. 16 for the weeks ended Nov. 3 and Nov. 10. Early storage estimates submitted to Reuters for the week ended Nov. 3 ranged from a drawdown of 21 Bcf to a build of 79 Bcf, with an average increase of 21 Bcf. NGI modeled a 9 Bcf withdrawal.
Even though the market has to wait an extra week for the latest print, the data for the week ended Nov. 3 is likely to be only a small build or draw “so it may not have much pizazz anyway because of the time of the month. If it was later in the month, it might have a bigger impact,” Saal said.
Cash Prices Cruise
Spot gas prices fell Monday, undercut by warm weather depressing heating demand across regions.
But in West Texas, it was maintenance stranding supply that sent some hubs to or near zero. Transwestern cash prices sunk 50.0 cents day/day to average zero. El Paso Permian fell to an average 7.5 cents cash price, down 55.5 cents.
Scheduled maintenance severely reduced capacity on El Paso Natural Gas Co. LLC’s Keystone 10A pipeline, while inspection work significantly reduced capacity on the company’s Leupp 5A north mainline.
Prices fell fastest in the Rockies. Northwest Sumas plunged $2.315 to $1.840, while Kingsgate fell $1.100 to $1.900.
Gains were mostly limited to Appalachia and the Northeast, both of which are expected to see cooler weather return this weekend with rain and freezing precipitation in northern areas.
Algonquin Citygate in the Northeast rose 15.0 cents to $1.695, while Texas Eastern M-3, Delivery rose 17.5 cents to $1.545.
The volatile SoCal Citygate hub jumped $2.290 to $8.280.
Benign weather is forecast for the next few days. The Northwest and the Northern Rockies will see cooler temperatures and rain this week, while the middle of the country and East Coast will be warmer than normal with dry conditions, according to National Weather Service data.
Meanwhile the far Northern Plains, Upper Great Lakes and northern areas of New England could expect cooler temperatures and a mix of some rain, freezing rain, and light snow through mid-week, NWS said.
