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December NatGas Retreats Further on Warmer European Model; Spot Market Spills Red Ink

The recent pullback in natural gas futures continued Tuesday as disagreement between the major weather models pointed to warmer risks through the remainder of November. Meanwhile, flat-to-lower demand in most regions following the recent cold blast had the spot market awash in red ink, and the NGI National Spot Gas Average fell 9 cents to $2.99.

After last week's impressive gains, December natural gas fell for the second straight day, trading as low as $3.064 before settling at $3.102, down 6.5 cents. January settled 5.9 cents lower at $3.203.

The market appeared to react to warmer shifts in the European model later this month that began to show up in forecasts this week. These "warmer changes” in the European model on Monday afternoon “carried forward overall" Tuesday, Commodity Weather Group President Matt Rogers told NGI.

The European model tends to carry a lot of weight in the markets and the warmer runs have given natural gas "more of a bearish tint,” Rogers said.

NatGasWeather.com said in an afternoon update the European model, while "a touch colder" for the Nov. 20-24 period compared to Monday, "remained much warmer than the colder" Global Forecast System model "after, especially Nov. 24-27.

"Thus, we have a fairly significant differences between two of the major weather models after next week, with neither willing to budge other than just slightly," the firm said. "This puts the overnight runs back in the spotlight to see if one of these weather models finally concedes to the other, with the markets likely to notice who wins out."

Powerhouse President Elaine Levin, who runs the Washington, DC-based risk management firm, put the pullback this week in the context of last week's bullish move up.

"On the prospect of some November cold weather, we were able to challenge the upper end of the range,” Levin said. “We've had a very difficult time getting anywhere near the lower end. So I think last week's move was significant in that we were able to set a new high.”

Levin told NGI that she's noticed "a lot of end-user buying, people locking in on this pullback. I think there's been a ton of complacency on natural gas going back to the summer, and last week was a wake-up call that it can get cold and natural gas can move...it's not going to stay between $2.75 and $3.15 forever, even though it sure felt like it."

Noting a gap up in the chart last week from around $2.98 to $3.05, Levin said she would expect the market to test support at the top of that gap.

"As we're starting to draw and think about weather, I think there's still a little bit better support," she said. "We'll see, of course, but I'm looking for that $3.00 to be a good support level the first time we test it, if we even get through the $3.05."

Predictions for Thursday's Energy Information Administration storage report suggest the season's first withdrawal could be in play. Stephen Smith Energy Associates, which revised its estimate lower Tuesday, is now projecting a withdrawal of 14 Bcf for the week ended Nov. 10. PointLogic Energy is calling for a 6 Bcf withdrawal.

In the spot market, natural gas for Wednesday delivery fell between a nickel and a dime at most points covered by NGI, with the biggest day/day declines occurring in the volatile Northeast.

Algonquin Citygate fell 93 cents to $3.38, which followed a $1.28 plunge in Monday's trading. Further south, Transco Zone 6 New York dropped 9 cents to $3.15.

Natural gas analytics firm Genscape Inc. was forecasting flat-to-lower regional demand over the next several days in the Northeast, Midwest, Southeast, Mid-Atlantic and Appalachia (including New York and New Jersey).

Wunderground was forecasting temperatures in Chicago Wednesday to reach a high of 50, with lows near 30. Chicago Citygate gave up 11 cents to $3, while Joliet also fell 10 cents to $3.

Prices in producing regions also came under downward pressure. In the Midcontinent, Panhandle Eastern dropped 8 cents to $2.68, and OGT fell 15 cents to $2.53. In Appalachia, the regional average fell 6 cents to $2.53, with Columbia Gas falling 5 cents to $2.95. Dominion South bucked the trend, adding 3 cents to finish at $2.47.

The South Texas regional average fell 2 cents Tuesday to $2.98 after a 4-cent decline in Monday's trading.

Genscape estimates showed a 0.6 Bcf/d drop in exports to Mexico Tuesday because of maintenance on Sistrangas, the operator of Mexico's main pipeline system.

Tennessee Gas Pipeline flows across the border were at zero Tuesday "after having averaged 193 MMcf/d for the prior seven days, Genscape noted. Texas Eastern (Tetco) deliveries to Sistrangas “are also at zero after running 140/MMcf/d the past couple days and averaging 94 MMcf/d over the past seven...

"Of note, however, is that our proprietary monitored estimates of NET Mexico pipeline flows are also down. This comes as a bit of a surprise: during the last Sistrangas maintenance at this point in October, we saw NET flows increase...We are not seeing gas re-routed via other systems."

Genscape expected flows to recover Wednesday, with the maintenance only expected to last 24 hours.

Tennessee Zone 0 South fell 4 cents to $2.91, with Texas Eastern South Texas dropping 2 cents to $2.99.

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