Natural gas futures bulls told the bears to go back into hibernation Monday, with a fast-approaching winter bringing extremely lean stockpiles to the forefront as the October and November contracts decisively broke through the psychologically significant $3 barrier. Lingering heat helped spot prices strengthen throughout much of the South and in the West; the NGI National Spot Gas Average added 7 cents to $2.65/MMBtu.

The October Nymex futures contract added 6.1 cents to settle at $3.038 Monday, going as high as $3.048. November, set to take over as the front month this week and trading with the most open interest of any month along the curve, added 5.5 cents to settle at $3.029. January added 4.8 cents to settle at $3.179.

“Concerns about low storage levels amid continued demand tightness, and strong cash prices stole the show” Monday, “as contrary to our expectations the October contract was able to break above strong resistance from $2.98-3.00 and continue higher right into the settle,” Bespoke Weather Services said. “This has vastly improved the technical picture with prices seemingly breaking out higher, and significant participation from the November contract indicates this is more than just strength ahead of the October expiry.

“Short-term, we do expect a strong October expiry with cash prices so strong, especially with lingering heat over the next couple of days,” the firm said. “We had expected to see burns loosen more with some of the cooler weather” over the weekend, “and the inability of burns to loosen (partially because nuclear outages continue to run so high) means that the market may not yet be ready to reverse back lower.”

Production data continued to show record-level supply and helped depress prices further along the strip, including April-October 2019, Bespoke said. But the potential for “at least a couple cold shots” around mid-October and recent weather-adjusted tightness in the market, among other factors, made the firm “less confident in any reversal” as of Monday, seeing “the path of least resistance up toward $3.07-3.10.”

After Monday’s gains, the 2018-2019 winter strip, taken as the average of the November-March contracts, was approaching an inflection point, Powerhouse Vice President David Thompson told NGI.

“The winter strip is getting back up into this $3.08-3.12 range where it stalled out back in May and June, and then stalled out again in late July to mid-August,” Thompson said. “If the bulls are really going to take control of this market,” then the winter strip “has to get through $3.12, something it’s failed to do for the last five months.

“…If we can get through that zone, then all of a sudden things get a lot more interesting on the bullish side.”

The latest guidance heading into Monday’s session did not provide a clear catalyst for a move higher, according to NatGasWeather.

“We don’t see the rally as weather-driven,” because the weekend weather data lost several heating degree days “across the northern U.S. Sept. 30-Oct. 2 and was milder overall compared to late last week,” NatGasWeather said. “…The latest midday data remained less impressive with the coming series of cold shots arriving into the northern and central U.S. later this week, while also being shorter in duration as reinforcing cold shots fail to push far across the Canadian border.”

NatGasWeather analysts instead viewed Monday’s rally as “a continuation of bullish momentum from last week,” supported by expectations for the upcoming Energy Information Administration (EIA) storage build to potentially grow the year-on-five-year average inventory deficit to more than 600 Bcf.

Late last week, the Desk’s Early View natural gas storage survey showed respondents on average expecting EIA to report a 63.4 Bcf injection for the week ending Friday (Sept. 21), below the five-year average 81 Bcf and close to the 64 Bcf build recorded a year ago.

Intercontinental Exchange EIA end of storage index futures showed the market continuing to lower its expectations for end-October inventories, dropping another 4 Bcf on Friday to settle at 3,293 Tcf — a number lean enough to set a new five-year minimum should it come to pass.

Meanwhile, Lower 48 production set yet another record high over the weekend, topping 83.51 Bcf/d, according to Genscape Inc. pipe production estimates. Monday’s estimate remained above 83 Bcf/d, bringing the September month-to-date average to 82.11 Bcf/d, Genscape senior natural gas analyst Rick Margolin said.

“This marks an increase from August of more than 0.65 Bcf/d and is a staggering 8.75 Bcf/d” more than the September 2017 month-to-date average, Margolin said. “The year-on-year growth leaders continue to be the Northeast (up more than 4.95 Bcf/d from last September), Texas (up 1.76 Bcf/d), Gulf Coast (Gulf of Mexico/Louisiana, up 1.59 Bcf/d) and Permian (up 1.41 Bcf/d).

“Only the Midcontinent and San Juan are currently posting lower output this September versus last.”

Turning to the spot market, prices strengthened from the Gulf Coast to the Southeast Monday as forecasts called for summer-like heat to linger across the region this week. Transco Zone 5 added a dime to $3.13.

“High pressure will dominate the southern U.S. with highs of 80s and 90s” this week, NatGasWeather said. “A rather warm system with heavy showers” was expected to move through the east-central United States on Monday and then move into the Northeast on Tuesday. “The northern U.S. will be mostly comfortable with upper 60s to lower 80s,” with cooler temperatures in the Northern Plains. “Stronger cool fronts will push into the northern and central U.S. Wednesday through Sunday.”

In New England, Algonquin Citygate added 17 cents to $3.18 with shoulder season maintenance set to potentially restrict imports into the region.

“Algonquin Gas Transmission (AGT) may finally run their biggest maintenance event of the year in terms of impact and duration” starting Tuesday, according to Genscape analyst Josh Garcia. “The event has been subject to frequent rescheduling and downgrading, including a last minute delay after market close last Friday (Sept. 21).

“From Sept. 25-Oct. 12, Algonquin will conduct an outage between its Stony Point (in New York) and Oxford (Connecticut) compressors,” Garcia said. “The outage may cut more than 0.5 Bcf/d of mainline flow into New England. This event coincides with notable nongas-fired outages” in the region’s power market, “which collectively should create a bullish environment for gas prices.”

Further upstream in Appalachia, Texas Eastern M-2, 30 Receipt fell 12 cents to $2.07, while Millennium East Pool jumped 68 cents to $2.00.

As Genscape reported previously, an outage at the Regency Marcellus Tombs Run gathering system “is going through despite the event being removed from Transco’s maintenance calendar,” Garcia said. Monday’s “timely cycle nominations fell to zero after averaging 566 MMcf/d over the last two weeks, but 173 MMcf/d is being rerouted to” Tennessee Gas Pipeline’s Dunkleberger Tioga meter.

Also in the region over the weekend, Millennium lifted a force majeure declared last week, removing restrictions that had been impacting westbound flows through its “CORNHART” location, eastbound flows through Wagoner West and “various storage interconnects” on Millennium and Columbia Gas, according to the analyst.

Meanwhile, Tetco was scheduled to begin maintenance Monday and continuing until Friday between the Eagle compressor in Pennsylvania and the Lambertville compressor in New Jersey that could impact up to 100 MMcf/d of receipts from Transco based on recent flows, Garcia said.

In West Texas, prices were mixed as the region continues to face wide negative basis differentials amid takeaway constraints. Transwestern added 6 cents to 88 cents, while Waha fell 19 cents to 64 cents, approaching the all-time low average price recorded at the location last week.

“Transwestern is performing maintenance beginning Tuesday that will cut roughly 125 MMcf/d of westbound flows across New Mexico,” Genscape analyst Joe Bernardi said. “Engine maintenance will require an operating capacity reduction to 466 MMcf/d at Station 9 near Roswell.

“The previous 30-day average at this station, which tracks combined receipts and/or deliveries from the West Texas and Panhandle Lateral systems, is roughly 593 MMcf/d,” Bernardi said. “In the past, Transwestern has accomplished similar reductions by maintaining an elevated level of net deliveries on their Panhandle system, and such events have not correlated with notable basis price movements.”

Points throughout California and the Desert Southwest gained by double digits as NatGasWeather was calling for hot temperatures in the region to start the week, with highs expected to reach the 90s in some places.

Weather Underground was calling for highs in the low 80s warming into the low 90s Wednesday and Thursday in Burbank, CA. SoCal Citygate added 18 cents to average $3.65 to start the work week, while SoCal Border Average gained 25 cents to $2.45.

Further upstream in the Rockies, a number of points saw double-digit gains as well, including Opal, which climbed 14 cents to $2.48.