Mercados / NGI Mexico GPI / NGI All News Access

Bullish Storage Miss Sets Up Natural Gas Futures Rally; Spot Prices Surge on April Chills

  • May adds 4.9 cents to settle at $2.735
  • “I think it’s a reaction to Thursday’s storage number,” says INTL FCStone’s Saal
  • Weather trending colder overall across northern U.S. in week ahead: NatGasWeather
  • SoCal Citygate down 70 cents to $3.12 as demand seen falling

Natural gas futures closed out the week on a bullish note Friday, with the front month adding close to a nickel on the heels of a larger-than-expected April storage withdrawal. Spot prices surged across the northern United States as forecasters were calling for colder temperatures and even some snow over the weekend; the NGI National Spot Gas Average climbed 17 cents to $2.59/MMBtu.

After trading as high as $2.760, the May contract added 4.9 cents to settle at $2.735 Friday, a larger increase compared to much smaller gains the prior two sessions. June settled at $2.764, up 4.7 cents day/day.

Thursday’s storage data surprising to the bullish side, along with stronger cash prices ahead of more chilly April weather, helped drive Friday’s rally, INTL FCStone Financial Inc. Senior Vice President Tom Saal told NGI.

“I think it’s a reaction to Thursday’s storage number,” Saal said. “It was a pretty healthy withdrawal. Obviously not a triple digit one, but it was pretty good for this time of year.” The withdrawal is subtracting from “the already low number. It’s making the job to fill storage even bigger.”

Prices still sit on the wrong side of $3 from the bulls’ perspective, although “a week ago everybody had it going to $2.50. Now we’ve got a little bit of friendly information, and the market reacted towards it. That’s positive,” Saal said.

It was probably traders who took short positions “thinking it’s going to $2.50” that drove the increase, he added. After signs of a widening storage deficit and chillier trends in the forecast “those traders probably decided not to take that bet on and decided to get out.”

In addition to the tighter-than-expected storage report, Thursday overnight and early morning Friday weather data “could also be helping as it’s showed a little colder overall trends across the northern U.S. for late” in the upcoming week and the week after, NatGasWeather.com said Friday.

“The pattern has been rather bullish over the past month with the weather data trending colder just about every week,” according to the firm. “This failed to spark a rally, likely due to Lower 48 production continuously setting fresh record highs.  Although, at the same time we thought it was beginning to become problematic bears failed to slam prices well under $2.72 over the past several weeks, and that could have resulted into today being a short covering rally.

“When the markets reopen after the weekend, the battle will resume between bullish storage deficits versus bearish production.”

On Thursday the Energy Information Administration (EIA) reported a 19 Bcf withdrawal from Lower 48 underground storage for the week ending April 6, a net decrease to stocks during a stretch that typically marks the start of injection season. Last year, 9 Bcf was injected during the period, matching the five-year average.

Total working gas in underground storage stood at 1,335 Bcf as of April 6, versus 2,060 Bcf a year ago and five-year average inventories of 1,710 Bcf, according to EIA. The year-on-year deficit widened week/week from 697 Bcf to 725 Bcf, while the year-on-five-year deficit increased from 347 Bcf to 375 Bcf, EIA data show.

“Compared to degree days and normal seasonality, the 19 Bcf withdrawal appears loose by 2.8 Bcf/d versus the five-year average,” according to Genscape Inc. “This is comparable to last week’s stat which appeared loose by 2.9 Bcf/d (degree days and storage were nearly unchanged week/week).”

After “two fairly loose stats in a row,” Genscape said the main drivers are production growth and the loss of heating demand. “Our daily production scrape model has gone from 6.5 Bcf/d over the five-year average in January to 8.6 Bcf/d so far in April...Our monthly forecast is calling for production to be more than 11 Bcf/d higher than the five-year average” by the fourth quarter.

Meanwhile, residential/commercial (res/com) demand has been growing on a per degree day basis, “which was evident in record shattering storage stats during the coldest weeks this winter,” Genscape said. But “that added res/com disappears in the summer, and the added res/com demand will fade further as heating degree days approach zero.”

In the spot market, prices surged across the Midwest and Northeast ahead of colder temperatures -- and blizzard-like conditions in some parts of the northern United States -- expected over the weekend.

Following warm conditions across the southern Great Lakes and East on Friday, “a strong spring storm is developing upstream and will track through the Rockies into the Plains with heavy snow, as well as powerful thunderstorms into the east-central U.S.,” NatGasWeather said in its one- to seven-day outlook Friday. “Temperatures behind the cold front will again drop into the teens to 30s for another round of stronger than normal demand. This strong system will track into the East Sunday and Monday.”

Midwest points saw double-digit gains across the board Friday, including a 33 cent increase at Chicago Citygate, which finished the day averaging $2.83. In the Midcontinent, Northern Border Ventura added 34 cents to $2.77.

Radiant Solutions was calling for temperatures to fall to 14 degrees below normal in Chicago by Sunday, with temperatures in Boston expected to dip into the 30s to low-40s, about 10 degrees colder than normal.

Iroquois Waddington climbed 46 cents to $3.19 Friday, while Algonquin Citygate added 86 cents to $3.80.

Further upstream in Appalachia, Dominion South jumped 25 cents to $2.31, while Columbia Gas added 7 cents to average $2.55.

Columbia Gas (TCO) maintenance related to its WB XPress expansions could impact at least 300 MMcf/d of eastbound capacity in Virginia starting Monday, according to Genscape.

“This will likely decrease TCO pooled production, due to only a portion of the Braxton gathering gas” in West Virginia “being re-routable. Additionally, deliveries to Cove Point” at Loudoun County, VA “will be reduced for the duration of the maintenance, which concludes April 24,” the firm said. “When in service, the WB XPress project will provide 1,300 MMcf/d additional capacity between West Virginia and Virginia.”

In California, SoCal Citygate tumbled 70 cents to $3.12 as import-constrained Southern California Gas Co. was forecasting system demand to fall slightly over the weekend, going from around 2.3 Bcf/d Friday to 2-2.1 Bcf/d Saturday and Sunday.

Further upstream, West Texas prices continued to rebound after after declining earlier in the week. Waha climbed 14 cents to $2.16.

Recent Articles by Jeremiah Shelor