Natural gas futures rallied again Thursday, gaining ground a fourth time this week as government inventory data signaled that gradually emerging heating demand and stronger LNG volumes are offsetting robust production – with winter looming.
At A Glance:
- EIA prints 74 Bcf storage injection
- Production holds below 102 Bcf/d
- November contract expires Friday
The November Nymex gas futures contract spiked 20.4 cents day/day and settled at $3.214/MMBtu. December, which takes over as the front month next week, gained 10.1 cents to $3.477.
NGI’s Spot Gas National Avg. rose 12.5 cents to $2.460. The cash market has advanced each session this week, led higher by outsized gains in the Rockies.
“Natural gas is riding a four-day winning streak” with low temperatures “in the Midwest forecast to slide to levels below freezing next week for the first time this fall” and “with the New York City area seeing temperatures in the 30s for the first time,” said Robert Yawger, director of energy futures at Mizuho Securities USA LLC.
Indeed, National Weather Service (NWS) data showed a frigid, snowy system setting up over the Mountain West and Northern Plains this week, with widespread subzero lows. The system is expected to spread over the Midwest and onto the Northeast by next week, driving seasonally strong heating demand.
Additionally, liquefied natural gas demand recovered in October – following maintenance-induced lulls earlier in the fall – and has hovered close to 14 Bcf/d and near capacity, StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, noted.
“LNG is key,” Saal told NGI.
So, too, he said, was the U.S. Energy Information Administration’s (EIA) latest storage print, an injection of 74 Bcf for the week ended Oct. 20 that was below expectations and historical averages.
Prior to the EIA report, injection estimates coalesced around 79 Bcf. The five-year average increase was 66 Bcf, while the year-earlier build was 61 Bcf.
The South Central injection of 30 Bcf led all regions. The Midwest followed with a 25 Bcf injection, but the rest of the country posted modest gains. EIA reported an increase of 12 Bcf for the East, while Mountain region stocks increased by 4 Bcf, and Pacific inventories rose by 3 Bcf.
“The relatively low overall number definitely helped this rally,” Saal said, noting that it reminded that winter is near and demand is strengthening.
Continued economic momentum could also power further commercial and industrial activity and, by extension, gas demand from those sectors. The U.S. economy grew at a 4.9% annual rate in the third quarter, the U.S. Commerce Department reported Thursday. It marked an improvement from 2.1% growth in the second quarter.
Still, the increase for the latest EIA report period lifted inventories to 3,700 Bcf, keeping stockpiles of underground gas for the winter above the year-earlier level of 3,387 Bcf and the five-year average of 3,517 Bcf.
Production hit an all-time high around 104 Bcf/d early this week – after approaching that level the prior week – according to Wood Mackenzie estimates. The strong output has enabled utilities to continue injecting enough gas into inventories and to keep stocks at robust levels. Should output remain elevated and mild fall weather return to the North, it could extend the injection season well into next month and ignite fresh bearish sentiment, Saal said.
“It’s just remarkable,” Saal said of the record production. “Wow, that’s all I can say.”
That noted, production held below 102 Bcf/d on Thursday amid a spate of maintenance events, Wood Mackenzie estimates showed. Analyst Laura Munder noted lower flows out of Texas, the Northeast and the Rockies.
Looking ahead, analysts are generally expecting a strong build with the next EIA report relative to the five-year average, given benign weather throughout southern markets, including Texas and the broader South Central region, as well as the elevated production levels during the current week.
Early estimates submitted to Reuters for the week ending Oct. 27 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.
Physical Prices
Cash prices advanced again Thursday, powered by weather demand in northern markets.
Frosty temperatures and snow descended from Canada by midweek and canvassed the Mountain West, according to the NWS. It was projected to hover over that region and the Northern Plains through the weekend, creating the potential for more elevated heating demand as well as production freeze-offs in the Rockies and North Dakota.
While some hubs in the Rockies gave back portions of robust gains earlier in the week, Kingsgate continued to rally and surged $1.140 day/day to average $5.175. Stanfield climbed 30.5 cents to $5.675.
Malin in the Northwest gained 38.0 cents to $5.530.
Prices also climbed across the Midwest, with Chicago Citygate ahead 31.0 cents to $2.360 and Michigan Consolidated up 19.5 cents to $2.185.
Looking to next week, the wintry weather was forecast to spread over portions of the Midwest and into the Northeast, ushering in lows in the 30s.
Further out, from Nov. 5-9, Maxar’s Weather Desk said northern markets could return to average conditions, while the western Lower 48 and southern portions of the country could see above-normal temperatures.
Meanwhile, Wood Mackenzie’s Munder said the lower production reading Thursday was driven by a 585 MMcf/d decrease in Texas and a 400 MMcf/d decline in the Northeast.
Rockies production was down 195 MMcf/d. While no freeze-offs were reported as part of that decline, the possibility for such a development looms large.
The Rockies region “is experiencing the first taste of winter weather with parts of Montana already receiving 12 inches of snowfall and 3-6 inches expected by Friday in North Dakota,” Munder said Thursday.
