Natural gas futures fell Monday as traders attempted to decipher a volatile weather outlook showing bearish risks later in the month, while the cash market adjusted to a falloff in demand from last week's cold blast. Driven by a sharp drop in New England spot prices, the NGI National Spot Gas Average fell 8 cents to $3.08.
In the futures market, December natural gas retreated Monday from last week's gains, trading as low as $3.144 before settling 4.6 cents lower at $3.167. January settled 4.4 cents lower at $3.262.
The prompt-month contract continued to fall in after hours trading, and was down around 7 cents to $3.14 as of 5 p.m. EDT.
Over the weekend and into Monday, the weather models pointed to bearish risks for the last week of November, with some disagreement and low forecast confidence.
"The most recent data remains mixed on whether additional systems and cold shots will follow into the east-central U.S. Nov. 26-28, or if warm high pressure will arrive to ease demand,” said NatGasWeather.com in an mid-day note Monday to clients. “There remain major weather model differences with the Nov. 26-28 pattern, where the U.S. Global Forecast System (GFS) model keeps cold shot continuing into the east-central U.S. in a more bullish setup, while the rest of the data" including the European model points to milder temperatures during the period.
“The market could be "waiting to see if the GFS trends warmer or the European model trends colder to determine the direction of the next move."
Bespoke Weather Services said it was maintaining a "slightly bearish sentiment" with "price volatility being driven by very volatile weather forecasts," with the firm noting the same disagreement between the colder GFS and the European model.
"We may continue to add gas-weighted degree days in the medium-term that will add support, but with production still near record highs and cash prices likely to weaken in the face of warmer weather this week, we think a larger pullback should be expected," Bespoke said.
Tom Saal, vice president at FCStone Latin America LLC, told NGI that Monday's pullback is typical of a market cycling up and down on shifts in the forecast as it tries to get a read on how cold the winter will be.
"We're going to see this kind of trading behavior now until at least the end of the year, until we get a clearer picture of how severe or not the peak of winter's going to be come January or February," Saal said.
"...The market's going to react" to bearish risks showing up in the longer-term forecasts. "Now the question is what are the cycles going to look like? Are the retracements going to be as deep as they were the last cycle down? I don't think they are."
In the spot market, day-ahead deliveries at Henry Hub followed the futures down, giving up 2 cents to $3.12.
The cold blast that dropped temperatures into the 20s in parts of the Midwest and Northeast last week came and went, followed by milder temperatures, and that weighed on cash prices Monday, especially in New England.
After trading as high as $8.19 last week, Algonquin Citygate tumbled $1.28 Monday to $4.31. Tennessee Zone 6 200L similarly dropped $2.66 to $4.08 after reaching $9 last week. Moving further south, Transco Zone 6 New York fell 19 cents to $3.24, while Transco Zone 5 fell 9 cents to $3.18.
In the Midwest, Chicago Citygate fell 6 cents to $3.11, while Joliet declined 2 cents to $3.10.
"The Arctic blast that blanketed parts of the Midwest and Northeast late last week and into this past weekend may be the last significant pop in weather for the rest of November," said PointLogic Energy analyst Warren Waite, citing the company's 14-day weather forecast. PointLogic tallied 83.1 Bcf/d in overall U.S. gas consumption last Friday, with that total falling through the weekend to 72 Bcf/d Monday.
Based on current weather forecasts, Waite said another 80 Bcf/d-plus demand day doesn't appear likely until December.
With some exceptions, Appalachian prices strengthened Monday, and the regional average rose 5 cents to $2.59. Tetco M2 30 Receipt adding 11 cents to $2.51 and Dominion South tacking on 4 cents to $2.44.
Appalachian prices have seen a significant impact from the season's first real blast of winter weather. After trading at an average of 91 cents during the month of October, Dominion South has averaged $1.72 since the start of November, with most of those gains occurring over the past week.
Elsewhere Monday, prices in the Rockies, Arizona/Nevada and California regions rebounded somewhat after posting broad declines in Friday trading.
Kern River climbed 6 cents to $2.88, Cheyenne Hub added 8 cents to $2.89, and Kern Delivery gained 12 cents to $3.04.
In California, the volatile and infrastructure-constrained SoCal Citygate added $1.03 to offset Friday's $1.07 decline, finishing at $4.80. SoCal Border Average gained 19 cents to $3.08.
In Texas, Genscape Inc. said up to 250 MMcf/d of exports to Mexico could be impacted Tuesday because of a maintenance event announced by Sistrangas, the operator of Mexico’s main pipeline system. Sistrangas posted notice that Tennessee Gas Pipeline (TGP) and Tetco exports to the Sistrangas system near Reynosa, Mexico, on the Texas border could be affected for a 24-hour period starting Tuesday.
"Tetco and TGP have averaged a cumulative 250 MMcf/d in U.S. exports to Mexico over the last 14 days at the affected locations," Genscape said. "...An analogous maintenance event occurred Oct. 14, which resulted in both Tetco and TGP cutting exports to zero for that gas day. During the Oct. 14 event, Genscape's proprietary monitors of flows on NET Mexico saw commensurate increases on par with the TGP decreases, possibly indicating re-routes, in order to continue the supply of natural gas to the Los Indios Hub."
Texas Eastern South Texas prices Monday did not indicate a significant impact from the scheduled maintenance, falling 3 cents to $3.01. The South Texas regional average fell 4 cents to $3.00.