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Natural Gas Futures Finish Near Even on Mix of Bearish, Bullish Signals; Spot Prices Mixed

Natural gas futures traded either side of even Monday as the market continues to weigh conflicting signals from lean storage inventories and strong production. Spot prices were mixed, with New England points moderating further as SoCal Citygate spiked again; the NGI National Spot Gas Average rose 3 cents to $2.45/MMBtu.

The May contract, set to expire later this week, settled 0.1 cents higher at $2.740 Monday after trading in a fairly narrow range from $2.706 to $2.757. June settled 0.8 cents higher at $2.775.

Bespoke Weather Services said the natural gas market was seeing a number of mixed signals on Monday. “The June contract led significantly through the day...indicating that the natural gas market seems to think cash prices may remain fairly firm through the shoulder season following a couple tighter than expected” Energy Information Administration storage reports.

“Heating demand looks to remain firmly above average through April 29, and that combined with pipeline maintenance appears to be keeping cash prices strong enough to prevent the front of the strip from falling back much further.”

However, a milder forecast for the start of May presents downside risk for prices as “May looks to hold few bullish catalysts in a market that is again seeing production recover to near recent highs,” Bespoke said.

NatGasWeather.com said the midday weather data on Monday “maintained a weather system into the southern and eastern U.S. this weekend. But after trending colder with it several days in a row, it’s a touch milder...this round.

“Most importantly, the first week of May continues to trend warmer, favoring a very comfortable pattern for light demand,” the firm said. “Essentially, the pattern favors a transition from being bullish in recent weeks to seasonal/neutral this week, then finally comfortable/bearish the first week of May.”

Last Thursday, the May contract dropped 7.9 cents after a bullish storage report before gaining all of that back in a 7.9 cent rally the next session. The up and down action to close out last week “revealed a strongly conflicted market,” with bears and  bulls vying for control, according to EBW Analytics Group CEO Andy Weissman.

“The reasons for this sharp difference in views are easy to discern,” Weissman said. He sees a struggle, as the bulls believe that with a large gas storage deficit versus recent norms, “a significant price increase will be needed to refill storage this year. Bears believe just as fervently that, with production continuing to grow rapidly, the storage deficit will be quickly reduced.

“Near-term, it is not clear which side in the debate will have the upper hand this week,” he said. “A run-up to $2.85 and a retest of support at $2.62-2.65 are equally plausible. This struggle between bulls and bears could continue for several weeks.”

Turning to the spot market, even with May just around the corner, much of the country will continue to see heating demand from colder-than-normal temperatures in the week ahead, according to Genscape Inc.

Genscape’s supply and demand model had “Lower 48 demand sitting at about 61.5 Bcf/d Monday and forecast to stay in the 61-62 Bcf/d range this week with winter lingering around like your jobless buddy from college,” analyst Rick Margolin said.

“Genscape meteorologists have forecast national population-weighted temperatures to cool daily through Saturday. Beginning Wednesday, the heating degree day (HDD) forecast is once again expected to run colder than seasonally normal. By Saturday, HDDs are forecast to reach 58 HDDs, 55% more than normal for that date.”

National demand is expected to peak at 62.2 Bcf/d Wednesday, up from around 57 Bcf/d in the year-ago period, Margolin said.

While markets in the West will see some cooling load, “Southeast/Mid-Atlantic and East Texas markets will play in HDD territory all week; by this time of year, both markets are normally in cooling degree day mode,” he said. “Midcontinent, Midwest and Northeast markets will also drive the demand for heating, with Northeast HDDs forecast to run three-four HDDs greater than normal in the early part of the week before returning to normal by Wednesday” and Midwest HDDs expected to run higher than normal Wednesday through Saturday.

In East Texas, Katy jumped 13 cents to $2.88, while in the Southeast, Transco Zone 4 gained 5 cents to $2.70.

In the Midwest, prices at Chicago Citygate added 7 cents to average $2.61 after declining over the last several trading days. In the Midcontinent, Northern Natural Ventura climbed 7 cents to $2.52.

According to NatGasWeather, “A weather system over the South and Southeast will bring heavy showers the next few days, but still rather mild with highs reaching the 70s. This system is a slow mover but will finally track into the East Wednesday to Thursday.

“A system coming out of the Rockies will follow a similar route deep into the southern U.S. late in the week, then merging with a colder system out of the Midwest this weekend over the East for another round of slightly stronger than normal national demand and where cooler trends were observed this weekend, but backing off slightly in the latest midday data.”

In New England, Algonquin Citygate tumbled 26 cents to $2.77, while Iroquois Waddington gave up 14 cents to $2.78.

Spot prices at Algonquin have dropped more than $5 over the last three trading days. The return of nuclear (nuke) generation to New England’s power stack has contributed to this recent moderation, according to Genscape analyst Molly Rosenstein.

“The 680 MW Pilgrim nuke plant in Massachusetts came back online Saturday after a seven-week hiatus due to flooding from the first nor’easter that hit in March,” Rosenstein said. “We are also seeing the return of the 1,028 MW Indian Point in the” New York Independent System Operator (ISO) territory “after having been offline for 35 days for refueling.”

Rosenstein said warmer temperatures and lower residential heating demand should continue to put downward pressure on New England prices, as “unlike the rest of the East, New England temperatures are forecast to be roughly in line with seasonal norms this week.”

In the West, the recently volatile SoCal Citygate opened the week by spiking $2.13 to average $4.38, after falling 61 cents in trading Friday. SoCal Border Average added 19 cents to $2.06.

Southern California Gas Co. (SoCalGas) was forecasting demand to hover around 2.3 Bcf/d this week, up from around 2-2.1 Bcf/d over the weekend. Receipts were forecast to come in just under 2.5 Bcf/d over the next several days.

Genscape analyst Joseph Bernardi said upstream competition from cooling demand in the Desert Southwest region likely contributed to Monday’s spike, combining with “a significant amount of import restrictions” from unplanned maintenance events on SoCalGas’s system.

Further upstream in West Texas, prices in the Permian Basin continued to come under pressure Monday. Waha tumbled 36 cents to $1.34, while El Paso Permian gave up 14 cents to $1.38.

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