The December natural gas futures contract opened its front-month campaign with a whimper, hampered by warming trends in weather forecasts, profit-taking and expectations for one more stout storage increase.
At A Glance:
- Futures shed 13.1 cents
- Forecasts trend warmer
- NGI models 82 Bcf build
Coming off solid gains over the course of the prior week, the December Nymex gas contract shed 13.1 cents on Monday and settled at $3.352/MMBtu to close its first session at the front of the curve.
NGI’s Spot Gas National Avg. raced the other direction, soaring 48.5 cents to $3.380 amid the northern freeze that endured from last week and expanded to the East and South.
NatGasWeather said traders booked profits Monday following a rally in futures markets through most of last week that created “overbought” conditions. Weather forecasts also shifted toward a more mild outlook for early November, the firm said, indicating seasonally light heating demand lies ahead.
To be sure, the frosty late-October weather that permeated the North and powered prices upward last week was expected to linger through much of the current trading week. This could provide regional support for spot prices for much of the week.
But NatGasWeather said data over the weekend “trended warmer” for the coming weekend and through next week. The outlook shed heating-degree days and pointed to much of the country potentially enjoying above-average temperatures through mid-November. This would dampen late-autumn heating demand, the firm said.
Production, meanwhile, topped 102 Bcf/d in Wood Mackenzie’s Monday estimate. That was off from recent record highs around 104 Bcf/d, but still strong by historical standards and up about 2 Bcf/d from a year earlier.
The robust production levels could drive at least one more strong storage injection with this Thursday’s Energy Information (EIA) inventory report.
Early injection estimates submitted to Reuters for the week ended Oct. 27 averaged 81 Bcf. NGI modeled a build of 82 Bcf. That compares with a five-year average increase of 57 Bcf.
“The natural gas market is well-supplied with storage approaching 210 Bcf above five-year normal,” based on estimates for the coming EIA print, said EBW Analytics Group senior analyst Eli Rubin.
He noted that an El Niño weather pattern developed this year. When that happens, it tends to usher in relatively mild winter temperatures and lower levels of snow in the Northern Plains, Midwest and Great Lakes – key gas-consuming regions.
As such, Rubin said, “notable downside likely awaits during the 30-45 day period if and when weather-driven gas demand dwindles in a mild El Niño December.”
EIA reported a 74 Bcf injection for the week ended Oct. 20. The print landed on the bullish side of pre-report expectations, but it boosted the surplus to the five-year average to 183 Bcf, versus 175 Bcf in the week-earlier period. Total Lower 48 gas in storage stood at 3,700 Bcf as of the last EIA report.
With warmer weather to start November, “we would need to see sustainably colder weather over the course of the entire winter” to create concern about any shortage of gas in storage, Tudor, Pickering, Holt & Co. analyst Matt Portillo said Monday.
Additionally on Monday, traders were watching closely the ongoing war in the Middle East. Israel declared war against Hamas earlier this month after the Islamist militant group attacked Israeli territory. Countries in Europe, while well-stocked with gas for this winter, are monitoring the conflict, concerned that flows of gas from the region are vulnerable and may present long-term ramifications.
Authorities in Egypt, for example, said over the weekend the country’s natural gas imports stalled because of disruptions caused by the war. Egypt imports Israeli gas and exports portions of it to Europe as LNG.
“There is so much potential for disruption with all that’s going on, so not surprised” with the news from Egypt, Steve Blair, a veteran gas broker and independent analyst, told NGI Monday.
The Egyptian gas alone is not a huge blow to global supplies. However, should it prove a harbinger of broader problems amid war escalation, upheaval and price volatility could follow, Blair added.
Cash Prices Rally
Spot gas prices spiked on Monday, bolstered by gains across the central United States and the East
NatGasWeather said that, despite the looming warm-up in November, near-term conditions would prove bullish.
The “first frigid cold shot of the season is currently sweeping across the U.S, with lows of 10s to 30s over much of the northern and central U.S., including 30s and 40s deep into the southern” reaches of the nation’s midsection, the firm said. “This includes lows of 20s and 30s the next few nights across North Texas, along with highs of only 40s-50s over much of Texas and the South. The first light freeze-offs of the season are impacting the Rockies due to lows of 0s-10s.”
The Schork Report’s analysts also noted the intensity of near-term weather for the current week. “Gas markets are dealing with Arctic air making its way across the nation,” they said. Sub-freezing “wind chills are expected as far south as the Gulf Coast.”
Against that backdrop on Monday, Chicago Citygate jumped 53.5 cents from Friday to average $3.450, while Waha in Texas gained $1.010 to $2.570.
In the Rockies, El Paso Bondad gained 53.0 cents to $3.525.
Bill Deger, AccuWeather senior meteorologist, said the freezing conditions were expected to impact swaths of the Northeast this week as well.
“A strong cold front and a pair of storms will usher in a significant pattern change in the Northeast to end October and begin November,” Deger said in a report Monday. “For many, this will include the season’s first snow and a freeze that will end the growing season.”
High temperatures in the region this week could drop 30 degrees or more from last week, he noted.
“Cooler air arrived on Sunday in the region amid rounds of rain,” Deger said. “Waiting in the wings, however, will be an even more significant blast of cold air set to arrive on Halloween and last through the first few days of November.”
In the Northeast Monday, Algonquin Citygate near Boston climbed $1.690 to $3.055, while Columbia Gas in Appalachia rallied $1.200 to $2.415.
