Prompt-month natural gas futures rocketed higher Monday, marking the most expensive contract expiration in more than a year as weather models continued to advertise mid-February cold risks. The forecast arrival of some wintry weather drove spot prices higher in the Northeast as prices in the West languished, and the NGI National Spot Gas Average climbed 75 cents to $4.03/MMBtu.
After gapping lower over the weekend, the February contract gained throughout the day Monday to roll off the board at $3.631, up 12.6 cents. That's the most expensive natural gas futures contract expiration since the January 2017 contract expired at $3.930.
The large spread between the February and March contracts that had developed recently persisted Monday, with March trading near even to settle at $3.167.
INTL FCStone Financial Inc. Senior Vice President Tom Saal said short-covering ahead of expiration likely drove prices higher Monday. The expensive price tag for February poses important questions to physical traders, he told NGI.
"That's the highest close we've had in a long time. If I'm a trader do I stay at $3.63?" Saal asked. "If the winter's over, prices probably go down. If the winter's not over and you think it's over, you go into the month floating and it goes out of sight on you. So there's a lot of uncertainty at the moment" and questions of whether that price is sustainable.
As for the roll gap from February to March, "technically you're going to see a big gap on the chart Tuesday, and you could argue that technically gaps usually get filled," Saal said. While it may not get filled immediately, "it's going to be on the chart. It's like a road sign. It's there. If we get close to it again we're going to see what happens."
After warm changes to the medium-range forecast weighed on prices over the weekend, futures "recouped gains following increased bullish weather risk on overnight and afternoon guidance Monday," Bespoke Weather Services said. "The March contract now takes over with a large number of conflicting signals; production has rebounded and loosened the market sizably, and we are expecting a limited withdrawal" from Thursday's Energy Information Administration storage report.
"Yet the story seems to remain largely the same from last week, as we continue to see mid-February cold risks as enough to continue fueling the backwardation at the front of this market, and see room for the March contract to run higher, even as it lagged along the natural gas strip today."
In the spot market Monday, Northeast winter price volatility continued, with several points adding $5 or more day/day amid forecasts for colder temperatures and some snow to hit the region this week.
"A cold blast is currently sweeping through the Great Lakes and will advance through the East Tuesday with lows behind the front dropping into the single digits to 20s for strong demand," NatGasWeather said Monday. "A brief milder break is still on track to follow this system into the East late Thursday into Friday, while at the same time frigid air pours into the Northern Plains and Midwest.
"Cold air will quickly advance across the Mid-Atlantic and East” as forecast on Friday, a day earlier than previous guidance, meaning less cold reaching the Plains, North Texas and the South, the firm said. "This also speeds up the break following this system to now also arrive a day earlier,” around Sunday or Monday (Feb. 4-5).
Algonquin Citygate added nearly $10 to average $14.48, while Transco Zone 6 non-New York jumped $5.70 to $9.09.
Genscape Inc. told clients it was expecting Lower 48 demand to increase gradually from 80 Bcf/d Monday to a weekly high of 95.4 Bcf/d by Friday, with the "14-day forecast...generating projected demand levels above the 90 Bcf/d mark through next week. The supply-side is in fairly good shape entering this next cold snap.
“Genscape Spring Rock daily pipe production estimates have had Lower 48 production holding consistently above 76 Bcf/d since Jan. 20, with most areas pretty much fully recovered from the early month freeze-offs." About 0.6 Bcf/d is still affected by freeze-offs, according to the firm.
In the Southeast, Transco Zone 5 climbed $5.55 to $9.04, while in Appalachia Dominion South added 25 cents to average $3.03.
"With the projected demand gains, pipelines across Eastern and Midwestern markets are tightening operations, with many notable systems implementing restrictions with penalties," Genscape said.
Algonquin Gas Transmission, Tennessee Gas Pipeline (TGP) and Transcontinental Gas Pipe Line (Transco) all had operational flow orders (OFO) in effect in anticipation of the latest round of winter heating demand, according to Genscape. TGP implemented its OFO for the 200 Line downstream of Station 254 where volumes enter the New England market, while Transco put an OFO in effect for Zones 4, 5 and 6, the firm said.
Other pipe operators had restrictions or advisories in place Monday, including Dominion, which was denying interruptible volumes on its PL-1 system, Genscape said. Dominion issued another alert Monday asking shippers on its system to conform to scheduled nominations, warning that it could issue an OFO if necessary.
In the Midwest and Midcontinent, price moves were mixed Monday. Chicago Citygate traded 4 cents lower at $3.22, while Lebanon added 14 cents to $3.23.
Genscape was forecasting demand in the Midwest region to fall from 16.52 Bcf/d Monday to 13.96 Bcf/d by Wednesday, with demand expected to increase again towards the weekend.
In the West, prices generally weakened across the Rockies, California and West Texas.
In its one- to five-day outlook Monday, Radiant Solutions was showing above- and much above-normal temperatures covering large parts of the western third of the Lower 48. Temperatures in Denver were expected to reach as high as 65, with averages coming in 19 degrees above normal.
Opal fell 15 cents to $2.66, while Malin dropped 16 cents to $2.64.