Natural gas futures on Tuesday advanced a second-straight session amid calls for colder weather patterns, production interruptions and the looming expiration of the prompt month contract. After a steep sell-off last week, traders also stepped back into the market to buy gas at a discount ahead of winter.
Following a 24.0-cent rally in the previous session, the November Nymex gas futures contract, which rolls off the board Thursday, settled at $5.613, up 41.4 cents day/day. December rose 41.3 cents to $6.166.
At its low in intraday trading this month, the front month had dipped below the $5.00 handle. Prices this year, however, have tended to rise heading into expiry.
NGI’s Spot Gas National Avg., meanwhile, gained 36.5 cents to $4.545, despite West Texas spot prices going negative for the first time this year amid a production surge and temporary pipeline constraints.
Prices at the Waha hub in West Texas, for example, dropped $1.745 day/day to average negative $1.165. Waha prices on Monday fell $2.020 from Friday’s levels.
A “surge in production is now being compounded by capacity constraints from scheduled maintenance,” said analysts at The Schork Report.
That said, the Schork analysts added Waha prices have printed negative about 40 times since 2019 before rebounding. “Owing to robust associated gas production and pipeline constraints throughout the market area, Waha negative prices are not unheard of,” they said.
Following losses last week, cash prices in every other region of the Lower 48 advanced Tuesday, offsetting the West Texas losses.
NatGasWeather attributed the futures and spot price revival early this week to “oversold conditions” from previous sessions as well as forecasts for colder weather – and stronger heating demand – in November. This would follow bearish, mild weather through most of October.
The potential for the Freeport LNG facility to return to service next month added a bullish undercurrent, the firm said, given it would bolster U.S. exporters’ abilities to meet robust European demand for liquefied natural gas. Freeport was forced offline in June because of damage caused by a fire.
Production this month, including in the Permian Basin of West Texas, surged to new highs. Overall output topped 101 Bcf/d at one point, a record. This occurred as autumn weather settled in, forcing futures down. The strong production and benign weather also have bolstered injections of natural gas into storage for the coming winter.
The U.S. Energy Information Administration (EIA) most recently reported a build of 111 Bcf for the week ended Oct. 14. The result marked the fifth consecutive triple-digit increase, adding to the bearish price sentiment prior to this week. Gas in storage stood at 3.34 Tcf – only 5.2% below the five-year average after hovering above 10% during a scorching summer that sent futures to $9.00.
However, for this Thursday’s EIA print, covering the week ended Oct. 21, early estimates submitted to Reuters ranged from injections of 40 Bcf to 102 Bcf, with an average increase of 62 Bcf. Preliminary results of a Bloomberg poll landed at an average of 59 Bcf. The estimates compare with a five-year average of 66 Bcf and point to an easing of the recent spike in supplies.
Conditions are “significantly looser than where the market was at the end of the summer,” said Rystad Energy analyst Ade Allen.
However, Allen added, Lower 48 prices could prove sensitive to any shifts colder in the weather outlook. The storage deficit to the five-year average persists and global demand, led by Europe, is likely to prove robust through the winter. Europe is calling for U.S. LNG to offset pipeline supplies from Russia amid the Kremlin’s war in Ukraine.
Wobbling West Texas Prices
Spot gas prices advanced across the Lower 48 – with the glaring exception of West Texas.
In addition to the slump at Waha, El Paso Permian plummeted $1.915 to negative $1.245 and Transwestern dropped 38.5 cents to negative 31.5 cents.
Wood Mackenzie analyst Quinn Schulz noted that Waha prices “crashed” Monday and Tuesday as a maintenance project at the nearby Plains Station limited flows from the Permian at a time when supplies from the basin are at robust levels.
Schulz estimated the maintenance event, launched Tuesday and scheduled to run through Thursday, would cut up to 515 MMcf/d through the Plains Station constraint. That constraint averaged 448 MMcf/d and maxed out at 528 MMcf over the past 30 days, he noted.
Elsewhere, however, prices climbed as weather forecasts hinted at bouts of colder weather in early November.
Maxar’s Weather Desk observed cooler trends for the western Lower 48 in its latest six- to 10-day forecast (Sunday through Nov. 3). Forecasting for the eastern half of the country, however, continued to show warmer-than-normal conditions.
“Changes are mostly minimal for the eastern half, where temperatures are on the warm side,” Maxar said. “Much aboves are from the Midwest to the East during the mid to late period, in advance of a storm system entering the Plains and Midwest at the end of the period.”
A “more amplified” pattern in the 11- to 15-day period (Nov. 4-8) resulted in colder trends for the West and warmer trends for the East, according to Maxar.
“Below normal temperatures favor the West from early to mid-period, including much belows in parts of the Rockies,” Maxar said. “Above to much above normal temperatures are in the eastern Midwest, South and East.”
Against that backdrop, Chicago Citygate gained 48.5 cents to $4.855, while Houston Ship Channel added 46.5 cents to $4.615 and Florida Gas Zone 3 picked up 17.0 cents to $5.095.
