The release of record storage data during December bidweek proved no help to buyers anticipating softer bidweek pricing resulting from burdensome inventories. The NGI National Bidweek Average rose a stout 20 cents to $2.27 and all but a few market points recorded gains of a dime or more.
While December 2015 bidweek showed a nice increase over November 2015 bidweek, prices are still considerably depressed compared with recent years. The $2.27 National Bidweek Average represents a 51% decline from the $4.59 average for December 2014 and a 40% decline from the $3.77 average for December 2013.
Of the minute number of locations seeing losses, Tennessee Zone 5 200 L, which samples a large and diverse trading region, dropped the most, giving up 89 cents to average $2.24. The market point showing the greatest bidweek improvement was Transco Zone 6 New York, with a rise of 76 cents to $2.98. All but one region was solidly in the black by double digits, with the Northeast adding a stout 31 cents to average $2.38 and the Midwest bringing up the rear with a 7-cent increase to $2.42.
Bidweek quotes in the Midcontinent rose by 11 cents to $2.15, and South Texas saw a gain of 14 cents to $2.14. East Texas added 15 cents to $2.13. California posted an increase of 17 cents to $2.48, and South Louisiana tacked on 19 cents to $2.16. Rocky Mountain bidweek quotes rose a stout 21 cents to $2.21.
December futures expired Wednesday at $2.206, up 17.3 cents from the expiration of the November contract.
Weather forecasts jockeyed for traders' attention throughout bidweek, but Wednesday traders had to deal with the expiration of the December futures along with the noon EST release of storage data by the Energy Information Administration (EIA) for the week ending Nov. 20. Natural gas futures staged a counterintuitive rally after reporting a storage build that was slightly larger than what traders were expecting.
The addition put inventories at a new record level of 4,009 Bcf and surpassed the previous record set the prior week at 4,000 Bcf. Despite traders being unaccustomed to a storage build this late in November, the expiring December futures rose to a high of $2.235.
Prior to the release of the EIA data, analysts' estimates were well dispersed. IAF Advisors was looking for an increase of 10 Bcf, and a Reuters poll of 18 traders and analysts showed a range from -4 Bcf to 11 Bcf, with an average 5 Bcf build expectation. Ritterbusch and Associates calculated a 2 Bcf withdrawal.
Genscape Inc., a Louisville, KY-based industry consultant with access to a wide range of both power and gas data, nailed the report with a 9 Bcf estimate.
"I'm not sure why that would be, but we actually rallied off the number. Traders were expecting a 5 Bcf build," said a New York floor trader. "I think people had [December] positions they wanted to settle up and did so regardless of the number."
"While the 9 Bcf net injection was slightly above the consensus for a 5-7 Bcf gain, this was not a material miss," said Tim Evans of Citi Futures Perspective. "Overall, we don't see this number as changing anyone's view of the intermediate-term prospects, with the upside still limited by a lack of intense cold."
Inventories reported by EIA are 554 Bcf greater than last year and 252 Bcf more than the five-year average. In the East Region, 1 Bcf was injected, and the Midwest Region saw inventories increase by 3 Bcf. Stocks in the Mountain Producing Region were unchanged, and the Pacific Region was also flat. The South Central Region, similar to the former Producing Region, added 5 Bcf.
The new five-region format is designed to further enhance market transparency and acknowledge a new market configuration featuring the a newly formatted East Region along with four others (see Daily GPI, Sept. 30).
At the moment, the market seems to be handling record storage adroitly, but the question remains how long can it withstand an ever-increasing storage surplus.
"This market has demonstrated resiliency so far this week in holding steady in the face of seemingly bearish weather outlooks. Updates to the one- to two-week views that are now stretching toward the middle of this month are still favoring above normal trends, particularly across the upper Midcontinent in areas that would include major metropolitan cities such as Chicago," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.
"Should these mild forecasts continue for another two to three days, the market will be forced to price in some sharply upsized supply withdrawals to be issued all the way out to Christmas eve.
"[A] record storage that had forced a sizable supply surplus is apt to see a further increase in the supply overhang. While an argument can certainly be made that occasional cold spells will be developing next month, such cold spells will likely be viewed as a requirement needed to reduce supply to manageable levels during next year's injection cycle."
In spite of abundant storage and weather forecasts looking mild at least through mid-December gas buyers were not inclined to lighten up on bid week purchases and rely on the spot market. The prevailing sentiment seemed to be to estimate degree days, calculate your load and go from there. "You rely on your storage. Those people aren't paid to take risk and there is no upside. You just do the prudent thing," said an industry pipeline veteran.
Doing the prudent thing may be easier said than done. "I hope we didn't buy too much. December isn't looking too cold," said a Michigan marketer. "We had some Michigan Consolidated and Consumers customers whose meter reads were supposed to be made on the 30th of the month but instead were read on the 25th and that is not so good. It's been cold the end of the month, but with a meter read on the 25th they will have more reported gas in storage and we may have overbought," the marketer lamented.
As bidweek drew to a close on Monday, physical natural gas for Tuesday delivery was mostly higher across a broad front as stormy conditions were forecast to envelope the central United States and next-day power prices proved supportive. Many points experienced double-digit gains and the NGI National Spot Gas Average rose by 10 cents to $2.08.
Eastern points advanced about a nickel. Futures were able to recover somewhat from Friday's thinly traded decline of nearly 9 cents and at the close January had risen 2.3 cents to $2.235 and February was up by 2.5 cents to $2.290. January crude oil fell 6 cents to $41.65/bbl.
Next-day gas in the Midwest on Monday advanced and although temperature forecasts proved nominal, next-day power proved helpful to those having to make incremental gas power purchases. Intercontinental Exchange reported next-day peak power at the Indiana Hub gained $2.40 to $2.790.
AccuWeather.com said Monday's high in Chicago of 45 degrees would hold Tuesday and slide to 40 on Wednesday, a degree short of normal. Detroit's 45 high on Monday was anticipated to rise to 51 by Tuesday before dropping to 43 Wednesday, 2 degrees above the seasonal norm.
Gas on Alliance rose by 19 cents to $2.24 and deliveries to the Chicago Citygate added 19 cents also to $2.25. Deliveries to Joliet were higher by 19 cents to $2.24.
Points along the newly expanded REX Zone 3 also rose. Deliveries to NGPL in Moultrie County, IL, gained 16 cents to $2.14 and gas on Panhandle Eastern at the Putnam County interconnect added 13 cents to $2.13. Gas at Lebanon, OH, rose by 12 cents to $2.11.
Low prices may finally be taking their toll. Industry Consultant Genscape reported falling production everywhere but the East. "Overall, Lower 48 production for November 2015 will be down compared to October 2015 by about 0.7 Bcf/d. Texas and the Gulf of Mexico witnessed declines of 0.2 Bcf/d each, while Louisiana and Oklahoma saw declines of 0.1 Bcf/d and 0.2 Bcf/d, respectively. The Rockies, San Juan, Bakken and Permian New Mexico as a group were down 0.3 bcf/d total. Each saw declines across the board regionally.
"Only the Eastern region saw production gains in November versus October. Those gains were concentrated in Pennsylvania and Ohio of 0.5 Bcf/d and 0.08 Bcf/d, respectively, while West Virginia saw a large decline of approximately 0.3 Bcf/d," the company said in a report.
Other major hubs were mostly higher. Next-day gas at the Henry Hub rose by 3 cents to $2.09 and deliveries to the Algonquin Citygate fell 27 cents to $2.35. Gas on El Paso Permian added 20 cents to $2.19 and deliveries to SoCal Citygate gained 24 cents to $2.57.
Weather forecasts continued to gravitate to a milder outlook. In its Monday morning report, WSI Corp. shows the entire country in both the six- to 10-day and 11- to 15-day time frames ranging from normal to much above normal. "The latest six-10 day period is similar to Friday's forecast. The northern and eastern U.S. is a little warmer. The southwestern U.S. is a little cooler. GWHDDs are down 1.6 to 105.5 for the CONUS.
"Forecast confidence is a little above average as medium-range models are in good agreement and have been consistent with the development of a mild pattern. The details with a series of cut-off systems offer some localized uncertainty and a downside risk across the southern half of the nation. The northern Rockies and northern tier could run even warmer."
The moderating weather patterns haven't deterred risk managers from probing the long side of the market. Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm, said in a weekly report to clients, "On a trading basis, we did take a small long position in the January contract. If we break the $2.10 level in the spot December contract, we will exit the position and stand aside."
December futures expired last Wednesday at $2.206 after trading as low as $2.133. DeVooght advises both trading accounts and end-users to hold on to the long January position at $2.50, but producers should stand aside.
Market technicians don't see any immediate movement either higher or lower. "[We] see the January contract facing the same challenges that the December contract did when it rolled into the spot position," said Brian LaRose, a market technician with United ICAP. "To build a case for long-term bottoming action bulls need to push natural gas above $2.441, 2.547-2.557-2.563 and 2.723. To keep the down-trend intact, bears need to crack the two recent lows at $2.051 and $1.948. In between we are stuck in neutral territory."