Christmas may have come early for natural gas bulls, as prompt-month futures rallied Monday amid forecasts calling for a positively frigid blast of Arctic air to arrive in time for the holidays.
Despite some moderate near-term demand projections, the spot market generally gained in step with the futures, and the NGI National Spot Gas Average added 2 cents to average $2.75/MMBtu.
After selling off heavily the past two weeks, the January contract surged 13.3 cents to settle at $2.745 Monday after trading as high as $2.778. February settled 12 cents higher at $2.755.
Futures bulls found support Monday from forecasts maintaining confidence in a blast of "frigid cold" set to hit the western and central United States later this week, according to NatGasWeather.com. The cold is set to hit the East around Christmas Day, the firm said.
"The most recent midday data was further colder with the pattern, showing a hefty dose of Arctic air being tapped to bring lows across the Northern and Central U.S. between -15F to 15F, with teens and 20s deep into the southern U.S., including Texas," NatGasWeather said in a midday note to clients.
"...A major pattern change will occur late Thursday and Friday as the door opens for frigid Canadian air to pour across the western and central U.S. for a rapid surge in heating demand. Cold will be slow to arrive over the East Coast," likely not until around Christmas Day. "However, when cold air does finally advance eastward, it will have tapped an impressive amount of Arctic air, bringing widespread colder-than-normal conditions to much of the country Dec. 26-30."
Earlier Monday, PointLogic Energy analyst Alan Lammey said the firm's six- to 10-day outlook, which has high forecast confidence, was showing "the arrival of potentially some of the coldest temperatures the nation has seen during late December in about 17 years.
"What is known is that an exceptionally amplified jet stream pattern will develop across North America with a series of strong ridges and troughs," Lammey said. "One of these is an impressively large and sharp trough that will dig southward across the Lower 48 allowing Arctic air to flood south. What remains uncertain at this time is how far east this surge of Arctic air will progress."
Still, INTL FCStone Financial Inc. Senior Vice President Tom Saal said Monday's rally was "weather-stimulated, but it was probably more technical in nature."
Saal said the latest Commitment of Traders Report points to short-covering.
"Speculators have done a lot of selling over the past few weeks, and they've put new shorts on," he told NGI. "They've been aggressively selling the market. It looks like they stopped selling and now they're buying something back.
"...It's a weather market. The lack of cold weather probably helped support the sell-off, and now that it looks like there might be some cold weather people are going to try and buy it back," Saal said. "It's not uncommon, we just haven't seen this kind of volatility in a while."
Analysts with Societe Generale said Monday that after recent declines natural gas appeared to be oversold.
"With front-month prices down by nearly 15% over the past month, and money manager positioning decidedly bearish, our" overbought/oversold "model flags natural gas as oversold," the analysts wrote. "For the third consecutive week, money managers increased their short position on Henry Hub futures while simultaneously decreasing their long position.
"Net position is flipped negative to -63,022 contracts, increasing the ratio of short positions to long positions to 1.3 times (from 1.1 times last week). Money managers' short position increase (+44,949 contracts) was the largest since June. In our opinion, current sentiment is not justified by the fundamentals, and we see significant price upside to natural gas prices in any other scenario than a very mild winter."
In the spot market, most regions outside of the Northeast followed the futures higher Monday. Henry Hub added 9 cents to $2.71.
Cash bulls have some impressive cold temperatures to look forward to during the holiday weekend. But until then, not so much, according to analysts at Genscape Inc.
"Heating demand this week is expected to weaken versus last and remain tepid until the holidays," the analytics firm said in a note to clients Monday. "Projections continue to hold for cold weather to arrive by the holidays to lift heating demand to winter-to-date levels. Genscape daily supply and demand modeling shows today's residential commercial (res/com) demand has sagged coming out of the weekend and with moderately warmer temperatures, running just under 32 Bcf/d versus last week's average of 44.5 Bcf/d, which includes the season-to-date high of 47 Bcf/d on Dec. 14.
"Res/com demand is expected to remain under the 40 Bcf/d mark through Friday," Genscape said. "However, projections for colder weather show enough intensity by Christmas Eve to offset the holiday effect and facilitate a daily increase towards a peak of 56.3 Bcf/d by Dec. 29."
In the Northeast, prices pulled back from last week's weather-driven gains. The constrained Algonquin Citygate plummeted $2.84 to $4.79, while Tennessee Zone 6 200L dropped $2.29 to $5.59. Transco Zone 6 New York fell 35 cents to $2.87. In Appalachia, Tetco M3 Delivery dropped 22 cents to $2.43.
Genscape was forecasting demand in the Appalachia region, which includes New York and New Jersey, to decline to 12.6 Bcf Tuesday after climbing as high as 18.28 Bcf on Dec. 14. In the New England region, Genscape expected demand to total 2.88 Bcf Tuesday, versus just over 4 Bcf Dec. 14.
Elsewhere in Appalachia, Dominion South added 8 cents to $2.15, while Columbia Gas gained 13 cents to $2.59.
Marcellus and Utica shale producers got some good news Monday when Rover Pipeline LLC notified shippers that its Phase 1B is officially in service. Rover said it would begin accepting intraday nominations into the Phase 1B facilities Monday.
According to Rover, Phase 1B adds six eastern Ohio receipt locations to the massive 3.25 Bcf/d Appalachian takeaway project, along with a delivery point into the Rockies Express Pipeline in Ohio.
Last week, FERC authorized Rover to place the Phase 1B facilities -- including the Clarington, Seneca and Berne laterals -- into service. The Commission also lifted the remaining holds on Rover's horizontal directional drills.
Meanwhile, the Energy Information Administration (EIA) released its latest Drilling Productivity Report Monday, calling for more growth from the prolific Appalachian Basin. Appalachia is expected to lead natural gas production growth for January among the big seven producing regions, according to EIA, which said it projects the Appalachian Basin to average 26.37 Bcf/d for January, up from a projected 26.03 Bcf/d for December.
Day-ahead prices in most regions firmed by close to a dime or more Monday. In the Midwest, Chicago Citygate added 11 cents to $2.66, while in the Rockies, Kern River climbed 13 cents to $2.67.
Kern Delivery jumped 19 cents to $3.03 as prices strengthened in California as well. PG&E Citygate added 7 cents to $2.91, while SoCal Border Average tacked on 18 cents to $3.00.
SoCal Citygate, volatile in recent weeks due to supply constraints, jumped 54 cents to $5.25. Southern California Gas Co. was forecasting total system sendout to exceed 3,000,000 Dth Monday and increase to 3,740,000 Dth by Thursday. That's versus actual sendout of 2,640,000 Dth Sunday, according to the utility's electronic bulletin board.