Natural gas markets spent the week looking ahead to December cold; between bidweek and futures trading, the natural gas markets keyed in on forecasts for chilly temperatures expected to move through beginning Dec. 6-7. A relative lack of short-term demand weighed on the spot market as it waited for that forecast cold to materialize, and the NGI Weekly Spot Gas Average fell 14 cents to $2.71/MMBtu.
As bidweek prices in demand regions like the Northeast and Midwest gained in anticipation of significant winter weather, the spot market moved the other way. Algonquin Citygate fell 32 cents to $2.87, while Transco Zone 6 New York dropped 31 cents $2.70.
Chicago Citygate gave up 22 cents for the week to average $2.75, while Dawn fell 21 cents to $2.88. Northern Natural Demarcation fell 27 cents to $2.62.
In Appalachia, Dominion South fell 18 cents to $2.29 as Columbia Gas dropped 9 cents to $2.77.
Out west, the the Cheyenne Hub fell 21 cents to $2.43, and Kern River gave up 7 cents to $2.58.
But, as has been the case recently, the story was more complicated in California, specifically for the supply-constrained SoCal Citygate. SoCal Citygate been volatile in the spot market for the last few weeks and saw December Bidweek prices skyrocket. After a number of dramatic day/day moves, spot prices there finished the week $1.21 higher at $5.08.
Futures spent the week trading on shifts in the forecast. January finished modestly higher Friday on the latest models showing gains in projected heating demand through Dec. 15.
The January contract ended the week at $3.061 and traded as high as $3.218 before some warm changes to the forecasts prompted a pullback. After a bearish finish to the week before, futures came out of the gates strong Monday, when the January contract settled 10.1 cents higher at $3.017.
On Thursday, the Energy Information Administration (EIA) reported a net withdrawal from natural gas stocks Thursday that fell on the bearish side of market expectations, but the report failed to move the needle in the January contract as forecast December cold remained the focus.
For the week ended Nov. 24, EIA reported a net 33 Bcf withdrawal from U.S. gas stocks. Last year 43 Bcf was withdrawn, and the five-year average for the period is a withdrawal of 47 Bcf.
In the minutes following EIA's 10:30 a.m. EDT release, the January contract briefly dipped as low as $3.051 before settling back into a choppy pattern in the $3.065-3.080 area that had preceded the report. By 11 a.m. EDT, January was trading around $3.073.
The prompt month opened about 8 cents lower Thursday on some warm changes in the overnight weather data concerning a cold pattern starting next week that drove the market higher this week.
Bespoke Weather Services judged the -33 Bcf figure as "slightly bearish," coming in "a bit looser than last week's print but on a 10-week basis is about flat.
"The market appears unimpressed, barely moving off the print as focus is instead on forward weather expectations and increasing production levels," Bespoke said. "We see this number as confirming our concerns about elevated production being able to absorb additional demand as we move through the winter, and see current market balance as one key reason we have pulled back so significantly from highs despite only limited gas-weighted degree day losses."
The market had been anticipating a slightly larger withdrawal than the final number.
A Reuters survey of traders and analysts had predicted on average a 37 Bcf withdrawal for the week, with responses ranging from -28 Bcf to -54 Bcf. Kyle Cooper of ION Energy expected a 33 Bcf withdrawal, while Stephen Smith Energy Associates was calling for a withdrawal of 41 Bcf, lower than an original estimate for a 45 Bcf withdrawal. PointLogic Energy models were predicting a 35 Bcf withdrawal.
Total working gas in storage now stands at 3,693 Bcf, versus year-ago stocks of 4,002 Bcf and a five-year average of 3,800 Bcf. The year-on-five-year deficit shrank week/week by 14 Bcf to -107 Bcf, the EIA data show.
By region, the Midwest saw a 22 Bcf withdrawal for the week, while 15 Bcf was withdrawn in the East. The Mountain region saw 1 Bcf injected for the period, and 3 Bcf was injected in the South Central region, including 8 Bcf injected in salt storage and 5 Bcf withdrawn from nonsalt.
Lighter demand heading into the weekend pointed to a spot market disinterested in three-day deals, and theNGI National Spot Gas Average fell 13 cents Friday to $2.65.
The January contract traded as high as $3.117 before settling at $3.061 Friday, up 3.6 cents -- a more muted move to close out an up-and-down week for natural gas. February settled 3.1 cents higher at $3.063.
Heading into Friday's open, some heating demand returned to the outlook overnight to help the bulls reclaim some momentum following a 15.4-cent sell-off a day earlier.
"The latest midday data maintained these colder trends," said NatGasWeather.com in note to clients Friday. The Global Forecast System (GFS) and the European models differ on a system starting around Dec. 12, with the GFS showing "the core of the coldest air mass focused over the north-central U.S., allowing some milder riding over the Southeast.
"The European model has a colder overall pattern, with sub-freezing conditions advancing deep into the southern U.S., while also having the core of the coldest air a little further east, placing the East Coast in a colder temperature regime," the firm said. "Subtle differences, but important for expected demand."
Bespoke Weather Services said it views the current temperature outlook "as more than slightly bullish, but with price action not yet moving exactly in line with our thoughts, our confidence is a bit below average, keeping sentiment just slightly bullish for now."
The firm expects the weather models to maintain and "potentially intensify" long-range cold risks through the weekend.
"We still closed up on the day, but both cash weakness and strip deterioration indicated that a combination of short-term warmth and elevated production...contributed to recent selling," Bespoke said Friday. "Afternoon model guidance only increased bullish risks, but a failure in price action to respond indicates that the market's attention is temporarily elsewhere."
FCStone Latin America LLC's Tom Saal, vice president, told NGI the speculators "may be a little more timid" until next week's weather arrives and the market gets a better idea of how cold it will be.
"We've had a couple of big moves in the last week or two, pretty much based off of forecasts, and I think the market may be getting a little bit tired of forecasts," Saal said.
Based on his work with Market Profile, Saal said the patterns suggest "speculator dominance" in terms of recent market movements. "When you see a lot of intraday movement up and down, that's when you see people getting chewed up, and that's what's happening now," he said.
Highlighting the recent forecast-driven volatility, Societe Generale analyst Breanne Dougherty questioned whether the market has fully priced in the outlook for December cold.
"Price moves have been aggressive, shifting dramatically around changes in the 15-day weather outlook," Dougherty said in a weekly update to clients Friday. "Thanksgiving and the expiration of the December contract amidst a warm weather pattern didn't help. A cold east pattern in the current 11-15 day window, however, does make us wonder why 1Q2018 contracts are only at $3.05/MMBtu.
"True, mild weather in November shifted our end-of-March storage number up to 1.65-1.7 Tcf, but a couple of weeks of cold in December can reverse that very quickly."
As for the near-term weather outlook, NatGasWeather said the market faced "several more days of lighter-than-normal national demand to go as high pressure dominates much of the country through the weekend, where highs of 40s and 50s will continue over the northern U.S., with 60s and 70s across the southern U.S., around 8-22 degrees warmer than normal."
With moderate temperatures on tap, the spot market tumbled for the second day in a row.
Besides California and the volatile SoCal Citygate, declines were most pronounced in the Northeast and Appalachia. Algonquin Citygate dropped 14 cents to $2.80, while Iroquois Waddington tumbled 21 cents to $2.78. Transco Zone 6 New York fell 46 cents to $2.47.
Dominion South dropped 16 cents to $2.21, while Columbia Gas fell 5 cents to $2.74. Tetco M2 30 Receipt dropped 14 cents to $2.16.
East-to-west flows on the partially-in-service Rover Pipeline have decreased recently, with scheduled receipts onto Rover at the Cadiz-MarkWest interconnect at 0 MMcf/d for Friday’s gas day.
As of Friday evening, Cadiz-MarkWest receipts were at 0 MMcf/d for Saturday as well, Genscape Inc. analyst Vanessa Witte told NGI. That's "versus a prior-month average of 115 MMcf/d. Receipts out of the Ohio River System declined significantly as well, actually; 527 MMcf/d is scheduled for Friday's gas day and at this time, the same for Saturday's gas day, versus a prior-month average of 827 MMcf/d.
"Deliveries to ANR were more than cut in half, though deliveries to Panhandle Eastern have remained consistent," Witte said. But she cautioned that “not only are these first-of-month nominations, which tend to see more fluctuation, Rover has seen a couple of rather large nomination revisions since they began operations."
SoCal Citygate posted another big move day/day, dropping $1.68 to $4.24. Surrounding points fell also, with SoCal Border Average dropping 16 cents to $2.78, and PG&E Citygate giving up 3 cents to $3.02.
Southern California Gas (SoCalGas) was forecasting system sendout to decline from 2,666,000 Dth Thursday to 2,281,000 Dth Saturday, before picking up to 2,904,000 Dth by Monday (Dec. 4).
A little bit of relief could soon be on the way to the Golden State, according to Genscape.
"SoCalGas posted a notice Thursday night announcing the limited removal of the capacity reduction at the Otay Mesa Mexican border point effective Friday," Genscape said in a note to clients.
As Genscape has noted previously, Otay Mesa had seen increased use after the outages at Needles and Topock. "After being set at zero for 15 days due to gas quality issues, operational capacity will increase to 50 MMcf/d. SoCalGas expects operational capacity to return to the full, normal level of 400 MMcf/d" on Saturday.
"In the three weeks before that reduction took effect Nov. 16, Otay Mesa had posted an average receipt of 146 MMcf/d, with a single-day maximum of 191 MMcf/d. It was serving a crucial import point for SoCalGas since mid-October, following the multiple unplanned remediation events on SoCalGas's typical import lines in eastern California."
The largest recorded receipt through Otay Mesa is 291 MMcf/d, Genscape said.