Both cash natural gas and futures bounded higher Friday. Cash buyers didn't want to get caught short over the weekend before cooler weather expected to knock close to 20 degrees off recent highs. Speculative futures traders elected to enter the market on the long side.
The NGI National Spot Gas Average jumped 29 cents to $2.45, and with the exception of a couple of points that traded unchanged, all other market points were solidly higher deep into double digits. Futures opened higher and never looked back. December rose 14.0 cents to $2.843 and January gained 10.5 cents to $2.980. December crude oil gained 27 cents to $45.69/bbl.
Some observers postulated that the current cold ripping across the Midwest could be aiding futures gains, but others saw heavy speculative buying interest in play. "This system will track into the eastern U.S. this weekend to bring a surge in natgas demand, highlighted by overnight lows dropping into the teens and 20s behind the cold front," said Natgasweather.com in a noon update. "Another milder break is expected during the middle of nexta week in the wake of this system before additional weather systems track across the country late in the week and through the following weekend."
Others saw spec buying at work. "There were a lot of spec shorts at these levels or lower, and they had to cover," said Alan Harry, director of trading at McNamara Options in New York.
"There was a lot of buying in the December $3 calls, and if we get some weather, they could move sharply higher. We could see $3.21 in the January contract, although this is a fundamentally oversupplied market.
"I'm just going off what I see the speculators doing," he said.
Near-term weather may be supportive, but the longer-term forecasts may prove ominous to natural gas bulls. Forecasters see no consistent changes to the longer-term weather outlook. "[Friday's] 11-15 day period forecast changes are mixed. Colder revisions were made over the Northeast, interior West and even the Midcontinent late in the period," said WSI Corp in its Friday morning report. "CONUS GWHDDs are up 0.6 for days 11-14 to 100 for the whole period, which are 18 below average."
Mild near-term weather may already be incorporated into the market. "Mild expectations are beginning to stretch into the month of December in forcing long-term forecasts back toward the likelihood of another mild winter that will be slowing storage withdrawals," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "These drawdowns will likely begin to show up within the EIA report to be released two weeks from today. This week's mild temperature trends will likely be driving one last injection that will probably lift supply to a record peak to between 4.05 and 4.06 Tcf.
"Storage excess against five-year averages has been increasing in recent weeks to a level that is now some 216 Bcf, or 5.6%, above five-year averages, a sizable cushion available to meet the needs of a colder than normal winter. But while these items would appear to paint a bearish picture, we feel that much bad news has already been baked in and that any surprises on the weather or production fronts are much more apt to be bullish than bearish from here. But at the same time, we continue to caution against attempts to pick a bottom to this recent $1 price plunge without assistance from a significant shift in the weather outlooks."
In physical market trading, prices shot higher as forecasts called for a sharp temperature drop from recent highs. AccuWeather.com forecast that New York City's Friday high of 65 degrees would ease slightly to 63 Saturday before plunging to 44 on Monday, 9 degrees below normal. Chicago's Friday high of 62 was expected to drop to 41 Saturday before rising to 45 Monday, 2 degrees below normal.
Gas at the Algonquin Citygate soared $1.26 to $3.17, and gas on Tenn Zone 6 200L rose $1.24 also to $3.29. Deliveries to Texas Eastern M-3, Delivery gained 48 cents to $2.31, and gas headed for New York City on Transco Zone 6 was quoted 58 cents higher at $2.41.
Weekend and Monday gas at western hubs was more subdued. Deliveries on El Paso Permian added a dime to $2.23, and gas priced at the SoCal Border Avg. changed hands 2 cents higher at $2.33.
Gas at the Henry Hub rose 25 cents to $2.58, and deliveries to the Chicago Citygates added 29 cents to $2.56.
Gas buyers tasked with procuring incremental supplies for power generation across PJM were expected to have plenty of wind generation to work with. "High pressure will continue to slide across the Mid-Atlantic today ahead of a vigorous storm system over the central U.S.," WSI said. "Partial sunshine and a southerly breeze will lead to above-average temperatures with highs in the 60s and 70s. The aforementioned storm system along with its trailing cold front will sweep across the power pool this evening through Sunday morning with a narrow swath of rain, a few thunderstorms and changeable conditions.
"A gusty south- to west-northwest wind associated with the storm system will lead to a period of strong wind generation today through Sunday. During this surge, output is forecast to peak [at] 4-6 GW."