Natural gas futures rallied on Wednesday for a second consecutive session ahead of December options expiration. Robust demand for U.S. exports and a government inventory report that pointed to tightening balances helped propel prices higher.

Storage Report

At A Glance:

  • LNG feed gas volumes hold above 11 Bcf
  • EIA prints a 21 Bcf withdrawal from storage
  • Spot prices surge again in the Northeast

The December Nymex contract gained 10.1 cents day/day and settled at $5.068/MMBtu. January rose 7.9 cents to $5.114. The prompt month had jumped 17.8 cents a day earlier.

NGI’s Spot Gas National Avg. gained 11.5 cents to $4.945.

In observation of the Thanksgiving holiday, North American natural gas traded on Wednesday was for delivery Thursday through Monday (Nov. 29).

December contract options expired at Wednesday’s close. Bespoke Weather Services noted that, through much of 2021, natural gas futures have rallied ahead of options expiry as traders position their books for the month ahead, leaving few in the market surprised with the climb higher.

Bespoke noted that near-term domestic weather-driven heating demand forecasts looked light Wednesday, given expectations for seasonally mild temperatures early next month. “We do feel the warmer path is the correct one…into the first half of December, thanks to a lack of high latitude blocking on either side of the continent.”

At the same time, production hovered near a 2021 high of 97 Bcf on Wednesday, according to Bloomberg estimates.

However, the bearish undercurrents were offset by continued strong demand for U.S. liquefied natural gas (LNG) exports. Destinations in both Asia and Europe are calling for more LNG as they brace for the winter months. LNG feed gas volumes held above 11 Bcf throughout the abbreviated trading week – within striking distance of record levels around 12 Bcf.

Delays in delivering more Russian gas to Europe via the recently completed Nord Stream 2 pipeline to Germany – stemming from both regulatory challenges and U.S. sanctions against Russia – amplified already simmering concerns about supply shortages on the continent. Japan and other major countries in Asia, meanwhile, are clamoring for LNG shipments as well, looking to maximize storage in the event of a harsh winter.

Several forecasters noted during the week the formation of La Nina, a potent climate pattern that emerges in the Pacific Ocean and, based on recent history, can cause extreme weather events, including intense bouts of cold across the northern hemisphere.

“Current forecasts for a La Nina imply colder-than-normal weather conditions in Europe and Asia,” BMO Capital Markets analyst Randy Ollenberger said. “Colder weather combined with delays to the start of the Nord Stream 2 pipeline could lead to materially higher natural gas prices over the next several months.”

EBW Analytics Group senior analyst Eli Rubin, citing a DTN weather outlook, said forecasts for the Lower 48 shift “modestly supportive” by mid-December. The United States could add 6.7 Bcf/d of weather-driven demand around that time.

“The key weather risk is the building of notable cold across Alaska and into western and central Canada,” Rubin said. Models suggest the development of a ridge “that could shift eastward and potentially unleash this bottled-up cold southward across the Lower 48.

“If this significant cold were to materialize,” he added, “it would likely deliver notable gains” for the Nymex January contract, which takes over as the prompt month on Monday. “Absent this bullish weather shift, however, the erosion of winter risk premiums and substantial declines…by mid-December are the most-likely scenario.”

Storage Support

The U.S. Energy Information Administration (EIA) on Wednesday printed the season’s first withdrawal from storage, an in-line 21 Bcf pull for the week ended Nov. 19 that markets welcomed.

EIA posted the result a day early because of the Thanksgiving Day holiday.

Ahead of the EIA report, the median estimates found by major polls consolidated around a withdrawal in the low 20s Bcf. The pull compared with an 11 Bcf withdrawal for the similar week a year earlier and the five-year average of a 44 Bcf decrease in stocks.

[Actionable Insight: Did you know that NGI is one of only two Price Reporting Agencies that include trade data from the Intercontinental Exchange. Find out more.]

Midwest stocks fell 13 Bcf, while East inventories declined 11 Bcf, EIA said. The chilliest conditions to date have permeated those regions – along with the Mountain West at times.

Total working gas in storage stood at 3,623 Bcf, 320 Bcf below year-earlier levels and 58 Bcf below the five-year average. Despite the gradual segue to winter weather, analysts said the withdrawal reflected a tightening market that they expected to result in a larger pull with EIA’s next print.

While the result for result for the Nov. 19 period improved the deficit versus the five-year average from 81 Bcf to 58 Bcf, the gap will widen “back to near 80 Bcf” after the next EIA report “accounts for colder weather systems and stronger demand” in the run-up to Thanksgiving, NatGasWeather said.

Cash Climbs

Spot prices on Wednesday eked out a late-week gain, lifted by spikes in the East, where temperatures were expected to rise but held near freezing territory the day before the holiday.

In the Northeast, PNGTS jumped $1.285 day/day to average $8.050 and Tenn Zone 6 200L soared $1.445 to $7.215.

Midwest prices were also up across the board, with Chicago Citygate ahead 10.5 cents to $4.800.

Declines in the West, however, partially offset those gains. SoCal Citygate dropped 77.0 cents to $4.785, while KRGT Del Pool fell 55.0 cents to $4.720.

NatGasWeather noted that benign temperatures were expected across much of the country on Thanksgiving Day and into the following day.

However, a new cold shot was expected to sweep across the Midwest into the East over the weekend and linger for a couple days, ushering in lows from the teens to the 30s “for a swing back to strong national demand.”

Heating needs could dissipate over the first several days of December, though, as a pattern poised to bring comfortable highs in the 50s to 70s is expected to leave large sections of the Lower 48 enjoying temperatures 10-30 degrees above normal, NatGasWeather said.

That noted, another turn lies ahead, as weather systems with rain, snow and chilly highs in the 30s are expected to track across the northern United States by mid-December, the firm said.