Natural gas futures rallied for a fifth time in as many sessions through much of Friday, supported by the first widespread blast of wintry weather of the season, a bullish storage result and trader positioning ahead of the front month contract expiration. It topped $3.400/MMBtu intraday.
At A Glance:
- Prompt month bull parade fizzles
- Extensive northern chill emerges
- Production holds below 102 Bcf/d
The late-session profit-taking ultimately snapped the bull run. Before rolling off the books at the close, the November Nymex gas futures contract on Friday lost 5.0 cents day/day and settled at $3.164. Still, it gained 9% from the end of the prior week.
The December contract, which takes over at the front of the curve on Monday, gained six-tenths of a cent to settle Friday at $3.483.
NGI’s Spot Gas National Avg. bounced 43.5 cents higher to $2.895, extending a weeklong rally as frigid air in the Rockies spread to the Midwest and threatened to push toward the Northeast in the week ahead.
NatGasWeather noted “the first sub-freezing cold shot of the season” had taken hold in the North during the trading week. As it spread across the nation’s midsection and toward the East, “strong” demand was in the cards for the final days of October and the start of the next month.
The “frosty system” that amassed over the Rockies and Northern Plains “will release and sweep across the rest of the northern and central U.S. Sunday through Thursday,” NatGasWeather added. This could also lead to “the first light freeze-offs of the season over the Rockies,” given frigid temperatures in the region.
While production hit a record level around 104 Bcf/d to begin the past trading week, it declined moderately and hovered below 102 Bcf/d on Friday, according to both Bloomberg and Wood Mackenzie estimates. Maintenance work in the Permian Basin and Northeast trimmed output late in the week.
Analysts also said speculators held net short positions heading into the November contract’s final week. With winter looming, more of them made adjustments ahead of expiry and provided futures an added boost in early trading. “The speculators had been bearish, but they’ve been known to change their opinion of the market very quickly,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI.
EBW Analytics Group’s Eli Rubin, senior analyst, agreed.
The early “surge” in prices likely contained “short-covering elements,” as “there is a greater fundamental rationale for upside.”
Rubin also noted that Thursday’s “surprise” government inventory report ignited bullish sentiment that carried into Friday. The prompt month had surged more than 20 cents on Thursday after the U.S. Energy Information Administration (EIA) reported an injection of 74 Bcf into storage for the week ended Oct. 20. That was lower than expectations and historical averages.
Ahead of the print, injection estimates hovered around 79 Bcf. The five-year average increase was 66 Bcf, while the year-earlier build was 61 Bcf.
The cold front that descended from Canada could, if it hangs around into November, “bring an abrupt end to the injection season,” Rubin said. “Although the cold across the western two-thirds of the U.S. may fade, lingering cold air masses could spread east and south to drive moderately chilly conditions east of the Mississippi River into mid-November.”
Analysts at The Schork Report sounded a similar tune on Friday. The injection season “is veering into the exit ramp,” they said.
Still, the analysts added, production remains elevated and supplies in storage appear ample for a normal winter. The latest injection lifted inventories to 3,700 Bcf, putting underground stocks 5% above the five-year average.
Early polling for the week ended Oct. 27 pointed to at least one more injection. Preliminary estimates submitted to Reuters ranged from injections of 71 bcf to 88 Bcf, with an average increase of 81 Bcf. That compares with an injection of 99 Bcf a year earlier and a five-year average of 57 Bcf.
Tudor, Pickering, Holt & Co. analyst Matt Portillo estimated a recent weekly average for domestic production of 102.4 Bcf/d. Given the strength in output, he modeled an 80 Bcf build for the next EIA print.
Cash Prices Cruise
Spot gas prices on Friday rallied as they did every other session of the week.
The northern cold hovered over the Mountain West but also expanded to the Midwest and fueled the bullish momentum.
Opal in the Rockies spiked $1.095 day/day to average $5.435, while Northwest Wyoming Pool gained 96.0 cents to $5.490.
Northwest Sumas jumped 34.5 cents to $6.225.
The Midwest regional average, meanwhile, surged more than 50 cents, with Chicago Citygate up 55.5 cents to $2.915.
Looking ahead, NatGasWeather forecasts on Friday showed the Nov 4-10 period “still isn’t cold enough to be considered bullish.” The firm said national heating-degree days were expected to dip below normal during that period. However, it said the outlook shifted cooler from prior forecasts, and there was the potential for frigid northern conditions to linger longer than expected.
The system that impacted the Midwest also could push further to the south, delivering freezing lows to parts of Texas. It also was headed east and projected to canvas the Great Lakes and eventually the Northeast, NatGasWeather said.
On Friday in New England, PNGTS advanced 66.5 cents to $3.010.
AccuWeather meteorologists said Friday that the winter blast had already delivered heavy snow in some areas and drenching, cold rain in others, with a “zone of wintry precipitation” stretching from the interior Northwest through the Rockies and Northern Plains. This was expected to move across the Midwest over the weekend.
"As the pattern evolves, many areas over the Plains and Midwest will experience the coldest air of the season so far," AccuWeather meteorologist Dave Dombek said.
