It was a tale of two markets Monday, as physical gas for Tuesday delivery for the most part held its ground, but natural gas futures took it on the chin under continued weather forecasts showing mild temperatures into the latter half of December and cascading crude and products prices.
The NGI National Spot Gas Average fell 2 cents to $1.97 with broad based declines of a nickel or so offsetting strength in the Northeast. Futures were a different ball game, as January skidded 11.9 cents to $2.067, and February retreated 11.5 cents to $2.132. January crude oil imploded $2.32 to $37.65/bbl.
"It looks like we are looking at a $1 handle,” said a New York floor trader. “It was a very bearish day for crude oil. Crude oil was down over $2 and the products were down 6 cents a piece. That helped move the natural gas lower.”
For the moment a major player in the demise of crude oil and by extension natural gas, the U.S. dollar was absent and observers noted that deteriorating crude oil prices were being driven by Saudi Arabia's continued grab for market share following a meeting last Friday (see Daily GPI, Dec. 5).
MV Financial’s Katrina Lamb, head of investment strategy and research, said Saudi Arabia "clearly is betting on two things: a pick up in 2016 global demand, and the long-awaited impact of production cuts from nonconventional U.S. projects."
The physical natural gas market is undergoing some turbulence also as westbound volumes of gas out of the Marcellus on REX Zone 3 are beginning to displace eastbound gas out of the Rockies. According to NGI’s REX Zone 3 Tracker on Monday, westbound REX reached a stout 81.6% capacity utilization with a flow of 1,721 Bcf. Total operating capacity is pegged at 2,110 Bcf.
Physical prices in the Marcellus and Midwest reflect the movement as Marcellus points advanced and deliveries to Chicago and the Upper Midwest eased. Gas on Dominion South rose 11 cents to $1.34, and deliveries to Tennessee Zn 4 Marcellus tacked on 11 cents as well to $1.30. Deliveries to Transco-Leidy Line saw an increase of 8 cents to $1.31.
Gas at the Chicago Citygates, however, fell 6 cents to $2.05, while parcels on Alliance shed a nickel to $2.05. Gas on Consumers was quoted a nickel lower at $2.07, and deliveries to Michigan Consolidated were seen 5 cents lower as well to $2.08.
Midwest quotes also had to deal with a temperate weather outlook. Forecaster Wunderground.com said Chicago's high of 43 degrees on Monday would reach 51 on Tuesday before easing back to 49 Wednesday, 11 degrees above normal. Detroit's high of 36 was seen jumping 10 degrees Tuesday and holding Wednesday. The normal high in the Motor City this time of year is 38.
Forecasts of heating load continue to slide as weather outlooks become more tempered. The National Weather Service in its forecast of heating requirements for the week ended Dec. 12 said New England would see 159 heating degree days (HDD) or 69 below normal. The Mid-Atlantic was expected to endure 144 HDDs or 67 less than its normal quotient and the greater Midwest from Ohio to Wisconsin was seen "enjoying" 143 HDDs or a stout 98 below normal.
"The forecast remains warm-dominated in this period; although not to the levels seen in the Sunday report,” MDA Weather Services said in its Monday six-to 10-day outlook. “This is as low pressure coming from the West is able to undercut the prominent eastern U.S. ridge, allowing for warm anomalies to tame.
"Despite this, most areas in the eastern half hold onto above and much above normal temperatures throughout the period, with the warmest conditions coming to the East from early to mid-period. A series of disturbances will continue to keep a focus of troughing over the West, but the primary flow from the Pacific limits how much cold will be seen there."
MDA forecasters conceded that there are risks to the forecast in that additional warmth in the East may be seen "especially if low pressure fails to weaken ridging as much as forecast. The South could be cooler late in the period based on some models."
Risk managers were standing aside the market. "Natural gas settled lower for the week,” said DEVO Capital Management President Mike DeVooght in a weekend report. “The January contract made new lows as the weekly storage number failed to push prices higher.
“The short-term weather outlook is calling for moderate temperatures throughout much of the United States. Weak demand, along with record production may push natural gas prices even lower. Fundamentally, the market is very well supplied and until the need for natural gas increases, this trend could continue. On a trading basis, we will stand aside."
Previously, DeVooght had held a long January position at $2.50.
FC Stone Latin America LLC Vice President Tom Saal, in his work with Market Profile, expected the market to test last week's value area at $2.222-2.152 followed by a test of $2.337-2.269 and $2.557-2.465.