Not even the indication of a tightening supply-demand balance was enough to move most natural gas forwards prices into the black for the week as market players remained fixated on the mild weather encompassing the majority of the country.
The U.S. Energy Information Administration reported an 81 Bcf build in storage inventories for the week ending Oct. 16, well below analyst expectations in the upper-80 Bcf area.
“I don’t think it was really surprising that storage came in lower than expected this week,” said Patrick Rau,NGI director of strategy and research.
“Storage is chock full right now, and the more full storage is, the less gas that can be physically pumped into the ground because of growing pressure,” Rau said. “So the fact that storage came in below consensus this week may be in large part simply because the pundits may have overlooked the pressure issue and therefore overestimated what can go into the ground.”
Despite the bullish build, the Nymex closed down on the day and ended some 4.4 cents lower for the period between Oct. 16 and 22.
Other markets across the country followed suit, shedding up to 10 cents in some key consuming regions as mild temperatures have kept heating demand to a minimum.
The fixed price for Transco zone 6-New York November sat Oct. 22 at $2.51, a drop of nearly 11 cents from Oct. 16, according to NGI’s Forward Look. December was down a staggering 26 cents to $4.57.
“It hasn’t been cold but a few nights,” a Northeast trader said, adding that the strong El Nino pattern is preventing cold weather from reaching the high demand centers that are needed to support the market.
Indeed, Appalachian demand is projected to average 9.79 Bcf/d over the next week, down from an average 10 Bcf/d over the previous seven days, according to Genscape. A similar downward trend is expected in New England, another key consuming region.
Genscape, based in Louisville, KY, provides real-time data and intelligence for energy and commodity markets.
But the sharp declines were not limited to the Northeast.
At Northwest Pipeline-Sumas, November sat Oct. 22 at $2.22, down 10 cents on the week, Forward Look data showed. December fell about 9 cents to $2.49.
Waha November also dropped about 10 cents to $2.21, while December slid 7.5 cents to $2.475. At El Paso-Permian, November was down 9.6 cents to around $2.21, and December was down about 9 cents to $2.45.
Only Algonquin Gas Transmission (AGT) citygates and Dominion South posted meaningful gains for the week thanks to a weather-driven bump in cash prices that occurred Thursday.
The AGT November fixed price jumped 13.7 cents between Oct. 16 and 23 to $5.24, while the Dominion November fixed price shot up 14.4 cents to $1.40, Forward Look data showed.
But with weather forecasts not yet showing signs of sustained cold, a rebound in overall prices isn’t likely, industry experts said.
In fact, the trader said with options trading looming next week, a $2.25 price on the Nymex is not unlikely, though short-covering could see prices recover somewhat.
The contract was trading midday Friday at around $2.29, nearly 10 cents lower on the day.
Rau agreed that while a bounce next week isn’t likely, if it did occur, it would likely be due to short-covering and would give cash prices a boost as well.
Meanwhile, forecasters warned that while signs don’t immediately point to chilly temperatures, the market should stay on its toes as conditions could change quickly.
“We continue to expect a fairly mild U.S. pattern into early next week apart from nuisance mild weather systems that bring areas of heavy showers, especially over Texas and into the south-central U.S.,” said forecasters with NatGasWeather.
The focus then turns to the first week of November, and whether truly cold air can push its way into the United States, the agency said.
“Essentially, we need to be careful for increasing demand the first week of November that could catch the markets off guard,” NatGasWeather said. “We’ve been bearish on weather sentiment recently, and prices could certainly sell off further, but do be careful because patterns have the potential to trend colder, while seasonal buying has been observed at this time in the past five years.”