Entering the Thanksgiving Holiday-shortened trading week, natural gas traders in the Northeast and Mid-Atlantic enjoyed a brief respite from the recent chill as temperatures reached into the 70s in some places, all while prepping for a potential Nor'easter later in week. As a result nearly all physical delivery points softened for Tuesday delivery, except for the northern half of the East Coast, where prices firmed ahead of the winter storm.
Over in the natural gas futures arena, traders jumped on fresh December weather forecasts that appear milder than originally expected. The December contract, which goes off the board on Tuesday, dropped 11.5 cents on Monday to close at $4.151, while the January contract came off 11.3 cents to finish at $4.304.
With only three trading days this week, many physical traders were already on the move to their Thanksgiving destinations, as evidenced by the relatively light trading volumes for the day. This was also true in the futures market, from a recorded volume in December natural gas of 221,288 on Thursday, down to 99,809 on Friday and 75,852 on Monday.
Outside of the Northeast/Mid-Atlantic, physical prices came off hard. The Henry Hub fell 25 cents to average $4.06, and the Chicago Citygates crashed 25 cents to $4.54, while prices out west followed suit, but to a lesser degree. PG&E Citygate dropped 11 cents to average $4.51, and SoCal Citygate declined 8 cents to $4.48.
Along the northern sections of the East Coast, a number of points increased between a dime and 40 cents as a frigid Nor'easter was forecast to impact numerous markets beginning Wednesday, snarling holiday travel plans. Transco Zone 6 NY gained 17 cents to average $3.36 for Tuesday delivery, while Texas Eastern M-3 tacked on 17 cents to average $3.34. Millennium East Pool was one of the biggest gainers, adding 34 cents to $3.04, while Transco-Leidy Line jumped 19 cents to $2.87. At least one prominent Northeast point missed the upward enthusiasm. Algonquin Citygates declined 7 cents to average $3.80.
Citi Futures Perspective analyst Tim Evans said natural gas bulls might get a limited dose of support in Wednesday's Energy Information Administration storage report for the week ending Nov. 21. "We still see some potential for a bullish reaction to Wednesday’s noon DOE storage report for the week ended Nov. 21 as it looks like our model’s projection for 131 Bcf in net withdrawals is at the lower end of the range of estimates we’ve seen so far, far above the 6 Bcf five-year average for the week," he said. "However, it now looks as though the market will revert to storage withdrawals well below the five-year average rate in the weeks to follow."
Analysts at NatGasWeather.com said Monday that the markets appear to be disappointed December will start milder as prices gapped lower on the open. "We have been expecting the Pacific jet stream to usher in a surge of more seasonable temperatures after the Thanksgiving Holiday weekend, so there isn't a surprise temperature forecasts are showing up milder for next week. But there will remain dangerously cold air hovering over southern Canada that will attempt to spill southward, although with a strong Pacific jet coming due to arrive, it will struggle to cross into the northern U.S., at least through Dec. 4th."
However, NatGasWeather.com noted that weather patterns haven't changed significantly, as this week is still expected to briefly start mild and showery over the eastern U.S., followed by a fairly cold weather system and reinforcing cold blasts for Thanksgiving Day through the weekend for the Midwest and Northeast.
"The markets appear to be more concerned about next week, which will bring near or warmer than normal temperatures to the southern two-thirds of the U.S. as high pressure dominates the Southeast and milder weather systems track into the West," they said.
"What happens after Dec. 4th could very well determine future price action, but right now it appears there will be a return to seasonably chilly weather systems after next week's warm-up as the two opposing weather forces continue to battle with no clear winner."
Likely coming as a bit of a blow to bullish natural gas traders was WSI Corp.'s revised winter forecast, which was released Monday (see related story). "The record cold in many areas in November has dredged up memories of the very cold winter last year," said WSI Chief Meteorologist Todd Crawford. "However, there are so many differences this year compared to last (e.g., El Nino, North Pacific ocean temperatures, changes in the stratosphere) that we would be surprised to get the same sort of magnitude of numbing cold persisting for the entire winter again.
"Aggregate weather-related energy demand is expected to run slightly below normal in December," said Energy Securities Analysis Inc. Senior Power and Gas Analyst Chris Kostas. "With slightly warmer-than-normal temperatures expected east of the Mississippi (and in much of California), major heating-demand centers could find relief from the cold temperatures of November.
WSI expects colder-than-normal temperatures to move into the East in January, with warmer-than-normal weather moving to the West. And in February, WSI's temperature forecast map for remains largely unchanged, with only the North Central area slipping into the colder-than-normal column. Lingering colder-than-normal temperatures in the East should have natural gas and power prices finishing the month "very firm" and gas inventories possibly ending the heating season again at very low levels, Kostas said.
"Inventories were left at very low levels last winter (at 822 Bcf, nearly 1,000 Bcf below the five-year average) and never fully recovered over the summer (261 Bcf below the five-year average to begin the heating season)," Kostas said. "Despite significant gains in year-over-year production levels (production is 4 Bcf/d higher), back-to-back years of very cold January/February periods would leave inventories at very low levels again and boost regional delivered natural gas prices."