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NatGas Futures Slump Continues with March Down a Dime; Cash Mixed

Natural gas futures slid nearly a dime Monday as the bears maintained control following last week’s nearly 80-cent decline in front-month prices. Much of the spot market weakened along with futures, although chilly temperatures in the Midwest helped lift Midcontinent prices as points in the West rebounded; the NGI National Spot Gas Average fell 14 cents to $2.78/MMBtu.

The March contract slid another 9.9 cents to settle at $2.747 Monday after trading above $3.200 less than a week before. The April contract settled at $2.726, down 6.6 cents.

“I think the market believes the winter is over,” INTL FCStone Financial Inc. Senior Vice President Tom Saal told NGI Monday. “It may not be over, but when you’ve got falling prices and we’re still in February, it’s signaling that we have enough in storage to cover any kind of cold scenario. That’s what the market’s telling us.”

Still, Saal said the forecasts could shift, and any gas taken out of storage between now and the end of winter will have to be refilled.

“We’ll see where we are price-wise” by the end of withdrawal season, he said. “We could be lower from here, but you’re starting to see a forward carry in the market. Right now April is the lowest price of the year, and then each month after April the prices get higher” with the last three months of 2018 “even higher.”

Recent weather guidance Monday couldn’t support futures after their attempt to stabilize late last week, Bespoke Weather Services said.

“Part of the move lower...came as we priced out the March/April winter premium further, with that spread moving a leg lower,” Bespoke said. “However, the entire strip got hit solidly, indicating that selling was about as much due to market loosening...as from heating demand losses” in recent guidance.

Bespoke said the $2.75 level held on as support Monday “even with afternoon guidance not looking as impressive...however, with March/April still positive and the entire strip declining so much Monday, it does seem like there could be further short-term downside in prices unless forecasts begin to turn colder.”

Analysts with BofA Merrill Lynch Global Research on Monday revised lower their natural gas price forecast for calendar year 2018 by 20 cents to $3.10. The firm pointed to last week’s up-and-down price action in the futures.

“Fluctuating temperatures are heating up volatility in the U.S. gas market,” analysts wrote in a note to clients. “At the start of the week, front-month prices broke through $3.60 on frigid weather conditions. Indeed, the first part of January looked similar to the polar vortex winter of 2013/14, when demand and storage declines in the U.S. and Canada hit record levels. The rise of onshore production has, of course, amplified the impact of cold weather” with well freeze-offs curtailing supply.

“Now that weather forecasts turned warmer, prices have retraced below $2.90 in a matter of days. We continue to believe that the U.S. natural gas outlook remains constructive relative to a depressed forward curve but acknowledge that production growth will overwhelm demand growth this year.”

That said, recent production growth may not be enough to fully replenish depleted storage levels in the upcoming injection season, according to the BofA Merrill Lynch analysts.

“We expect withdrawals of over 2.5 Tcf” through March 31, putting storage at around 1.3 Tcf heading into the injection season, “the lowest level for U.S. winter ending stocks since” 2013/14. “That in turn requires a very large injection season (2.5 Tcf versus 2.1 Tcf on the five-year average) to reach comfortable inventory levels by the end of October 2018,” the analysts said.

“We doubt this is possible given the structural increase in demand and expect inventories to reach only 3.5 Tcf by the end of October. This assumes an increase in structural demand of 3.7 Bcf/d during the injection season, related to higher liquefied natural gas exports, pipeline exports to Mexico and industrial gas demand, compared to production growth of over 7 Bcf/d.”

Lower 48 demand is expected to average 92.3 Bcf/d for the week ending Thursday, the highest average for a week since mid-January, PointLogic Energy Vice President Jack Weixel wrote in a note to clients Monday.

“This week’s pop in domestic demand is more modest and represents a return to national temperatures in the normal range for this time of year,” Weixel said. “February is typically the second-coldest month of the year, and the first full week of the month will average just 2.3 Bcf/d greater than average domestic demand in December 2017.

“The week ending Feb. 15 will likely show average domestic demand of just 85.2 Bcf/d as cold weather retreats from the Midcontinent and Northeast,” Weixel added. “This is a bit of a letdown for the gas industry, as as recently as late last month a majority of weather models were showing prolonged cold” beginning around Wednesday.

PointLogic data show the falloff in demand for next week focused in the Northeast and Midcontinent regions, according to Weixel. Meanwhile, PointLogic data showed total Lower 48 production at 77.87 Bcf/d Monday after surpassing the 78 Bcf/d mark over the weekend.

As futures sold off further Monday, the spot market continued to weaken as well, though points in the Rockies and West Texas finished higher after dropping below $2 heading into the weekend.

The California Regional Average also gained Monday thanks to a sharp uptick in Southern California.

Utility Southern California Gas was forecasting system demand to increase from 2,272,000 Dth/d Sunday to over 2,500,000 Dth/d over the next several days.

SoCal Citygate jumped 57 cents to $2.62, still a more than 15-cent discount to Henry Hub, which dropped 7 cents to average $2.79.

Midcontinent prices saw a bump Monday as forecasters were calling for frigid temperatures throughout the Midwest.

NGPL Midcontinent jumped 20 cents to $2.42, while Northern Natural Ventura added 26 cents to $3.01.

As of Monday, Northern Natural Gas had issued safe operating limit alerts for all market area zones for the first three gas days of the work week, citing “lower than normal system-weighted temperatures”

“Two weather systems will sweep across the North and East this week, with the first already through the Midwest and approaching the East,” NatGasWeather.com said in a one- to seven-day outlook late Sunday. “A second system will follow mid-week with a similar track. Lows with both these system will be quite chilly, with 20s to -10 degrees over the northern U.S., and 20s and 30s into the southeastern U.S.

“The western and south-central U.S./Texas will be mostly mild to warm this week, with highs of 50s to lower 70s,” the firm said. “A mild ridge will expand over the northern and eastern U.S.” this coming weekend, “while fresh cooling will arrive over the central U.S.”

Forecast temperatures ranging from the 20s down into the single digits to start the week in Chicago couldn’t lift prices there Monday. Chicago Citygate fell 5 cents to $2.71, while Joliet dropped 5 cents to $2.74.

Receipts onto the Rover and Texas Eastern Transmission (Tetco) pipelines via the Seneca processing plant in eastern Ohio “fully recovered” for Monday’s gas day, Genscape Inc. told clients Monday. This comes after a brief reduction last week that coincided with a reported explosion on the Rockies Express Pipeline’s (REX) lateral connecting to the Seneca plant.

Nominations from the Seneca plant to Rover and Tetco “have fully recovered after having dropped to 0 MMcf/d for the Feb. 1 and Feb. 2 gas days, likely due to the explosion on REX’s Seneca Lateral last week,” Genscape said. “REX issued a force majeure in response, shutting in receipts from both MarkWest/REX Seneca and Rover Noble, though both locations haven’t had significant nominations recently.

“On Saturday, nominations to Tetco jumped 357 MMcf/d, while Rover was still flat. However, on Sunday and Monday Rover received 333 MMcf/d, while Tetco’s nominations dropped to 150 MMcf/d and 51 MMcf/d, respectively,” according to the firm. “In the seven days prior to the force majeure, Rover averaged 337 MMcf/d and Tetco averaged 172 MMcf/d.” REX had not lifted the force majeure as of Monday afternoon.

Rover flowed more than 1.5 Bcf/d of Appalachian volumes east-to-west to interconnects with ANR and Panhandle Eastern Monday, according to NGI’s daily Rover Tracker.

Dominion South fell 13 cents to $2.47 Monday.

Prices eased in the Northeast, though some points still traded at a significant positive basis.

AccuWeather was calling for overnight lows in the 20s Monday in Boston to give way to temperatures in the mid-20s to mid- to upper-30s Tuesday and Wednesday. New York was expected to see temperatures ranging from the upper 20s to low 40s Tuesday and Wednesday, according to the forecaster.

Algonquin Citygate gave up another 23 cents to average $7.03 Monday after dropping almost $5 on Friday. Transco Zone 6 New York shed $1.19 to $3.48.

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