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Warm weather trends in forecasts for the remainder of November and into December crushed natural gas futures and forwards markets during the short week leading up to the Thanksgiving Day holiday, with December prices averaging 9 cents lower from Nov. 17 to 21, according to NGI’s Forward Look.
It was a disappointing week from the start, with Nymex December futures falling 5 cents as warmer-than-normal temperatures showed up across most weather models. The short holiday week and an early storage report from the United States Energy Information Administration (EIA) coming out Wednesday, also led to some intraday volatility.
Tuesday’s action saw a bit of technical trading as several attempts to fill the gap between $2.99 and $3.05 were attempted. Those efforts failed, with prompt-month settling at $3.017, a hair above the 200-day moving average.
On Wednesday morning, however, the spiral downward continued for December prices as even warmer weather moved into forecasts, with significant gas-weighted degree day (GWDDs) losses occurring overnight Tuesday, according to Bespoke Weather Services.
“Filling in that stubborn gap leaves the door wide open for continued weakness, at least from a technical standpoint. December still has more room to fall before it reaches oversold territory, and before it approaches the bottom of its current 20-day Bollinger band,” said NGI Director of Strategy and Commodity Research Patrick Rau.
Most the degree-day losses -- to the tune of 9 GWDDs -- were in the medium-term, where confidence in a temporary ridge across the East popping has increased across all guidance, the forecaster said.
“The result is that heating demand never recovers after it plummets over the holiday weekend (potentially pulling cash prices lower), and despite a weak cold shot around the 1st of December, most days through the next 15 should have heating demand below average,” Bespoke said.
The New York-based forecaster said, however, that days 14-16 are showing some of the most bullish guidance in a while, with a strong cold shot possible across the country into the second week of December.
“This is keeping our sentiment from turning bearish with these GWDD losses, as a pattern shift remains possible soon,” it said, noting $2.92-$2.93 as a strong support level to gain long exposure ahead of December.
NatGasWeather forecasters agreed there is more supportive after the first week of December, with better chances of sub-freezing temperatures expected to return across the northern U.S. Dec. 6-9, “but this would require considerably more data come on board for the markets to expect it.”
As of Wednesday midday, traders remained unimpressed as the Nymex December contract had fallen as low as $2.96 before eventually settling at $2.968, down 4.9 cents on the day.
Wednesday’s storage report from the EIA offered no surprises to move the market significantly in either direction. The EIA reported a 46 Bcf withdrawal from storage inventories for the week ending Nov. 17, below estimates showing an average 51 Bcf draw but close to the ICE range of -47 to -48 Bcf. At 3,726 Bcf, inventories are now 319 Bcf less than last year at this time and 121 Bcf below the five-year average of 3,847 Bcf.
While current weather forecasts are certainly hurting the market, Rau said it is still far too early to throw in the towel on the winter heating season. “January could be at risk if we have don't have a cold December, but if history is any indication, it would be far more difficult for December to plunge just because we had a warm November,” he said.
Another headwind for gas, however, is that crude oil prices are above $55/bbl, which could entice producers to boost drilling in areas the Permian, Eagle Ford, Niobrara and Bakken, which would result in more associated gas production. The Eagle Ford, in particular, has plenty of gas takeaway capacity that could incentivize producers.
“The new mantra among U.S. E&P companies is to spend within cash flow, but old habits die hard,” Rau said.
As Centennial Resource Development CEO and industry veteran Mark Papa said earlier this month, "I think it's going to be interesting, in my opinion, to see how E&Ps respond to the increased pressure on capital efficiency and less emphasis on growth.
“Being away from it in retirement for a period of time, I do see more pressure from the investment community on downplaying volume growth and focusing more on returns. And I'm just curious to see how that really plays out with E&Ps, particularly as oil prices rise. I'm not as sanguine as others. I think E&Ps are going to generally go for growth and not returns once oil prices rise, but we'll see."
Taking a closer look at the markets, nearly every market in the U.S. followed the lead of the Nymex. December forward prices fell an average 9 cents between Nov. 17 and 21 as did January and the balance of winter (January-March), Forward Look data show.
The exception was Southern California Gas City-gate, which has continued to move against the pack as restrictions on gas flows into the region and storage limitations have led to volatility in both the cash and forward markets.
SoCal Citygates December forward prices shot up 19 cents from Nov. 17-21 to reach $5.047. During the same time frame, spot prices rose from $3.26 to $4.31, according to NGI’s Daily Gas Price Index.
The rest of the SoCal Citygates forward curve saw far more muted action, with January picking up 2 cents to reach $4.318 and the balance of winter (January-March) slipping 3 cents to $3.72.
While no new restrictions were put in place in California this week, the region suffered a setback when SoCal Gas on Nov. 16 announced an unplanned, indefinite restriction on imports at Otay Mesa along the border with Mexico. SoCal stated the point is “unavailable due to gas quality issues” and did not provide an end date.
Meanwhile, injections are prohibited at three of SoCal’s four fields (including Aliso Canyon) because of high inventories, with the fourth field (Goleta) estimated to have only an additional 5 Bcf of remaining capacity. Although SoCal’s stated system-wide firm withdrawal capacity is only 85 MMcf/d, this does not incorporate the 500-650 MMcf/d of withdrawal capacity from Aliso Canyon, which the California Public Utility Commission has directed SoCal to use as a last resort to prevent curtailments.
Northeast Markets Post Double-Digit Drops On Light Demand
With sustained cold weather remaining elusive, Northeast forward markets continued to post substantially larger declines than the rest of the country.
In New England, Algonquin Gas Transmission City-gates (AGT CG) December forward prices tumbled 27 cents from Nov. 17 to 21 to reach $5.641. The AGT CG prompt month has dropped some 92 cents in the last three weeks and comes as demand in the region is expected to soften considerably in the weeks ahead.
Data and analytics company Genscape Inc. shows demand peaking Nov. 22 at 3.36 Bcf/d, but then averaging 2.906 Bcf/d for the Nov. 27-Dec. 1 work week and 3.00 Bcf/d for the first three days of the following work week.
The mild weather is reflected in LNG imports in New England. Canaport has yet to see a notable uptick in sendout, Genscape said. October had only 268 MMcf/d in sendout, or an average of 8.6 MMcf/d. November to date has averaged 7.6 MMcf/d.
Meanwhile, the Provalys is the next ship inbound to Everett. This ship does not typically run the route from Atlantic LNG to Everett. Generally, the BW Fleet exclusively imports to Everett, Genscape said.
Sendout from Everett has been steadily increasing as the weather transitions to winter and some cold sets in. The BW Fleet ships have returned to the Atlantic Basin, and will increase import frequency into Everett through the upcoming winter months, Genscape said.
Further out the curve, AGT CG January forwards were down 15 cents from Nov. 17-21 to $8.744, and the balance of winter (January-March) was down 13 cents to $7.61.
New York declines rivaled those of its northern neighbor amid a fluctuating demand picture in the region. Transco Zone 6-New York December forward prices plunged 26 cents from Nov. 17 to 21 to reach $4.044, while January fell 10 cents to $6.958 and the balance of winter (January-March) slid 9 cents to $5.91, Forward Look shows.
In the producing region, Dominion South December forward prices dropped 12 cents during that time to $2.402, January slipped 10 cents to $2.632 and the balance of winter (January-March) fell 9 cents to $2.64.
Genscape shows Appalachia demand reaching 13.58 Bcf/d on Nov. 22 but then falling to a low 12.80 Bcf/d by Nov. 29. Stronger demand is on top for the first week of December, averaging 14.15 Bcf/d from Dec. 4-6.