Physical market longs were wondering when the seemingly never-ending spiral of lower prices might at least stabilize when trading ended Friday Dec. 11. Prices fell hard and fell often and no market point traded in positive territory as the lack of anything resembling winter weather for much of the country continued to stifle demand.. At the end of the week the NGI Weekly Spot Gas Average had imploded 25 cents to $1.82.
Declines across the country of 20 cents or more were common as traders succumbed to the realization that even seasonal winter temperatures might not make an appearance until January. In addition the market is just two weeks off from posting record storage of 4,009 Bcf, and with December fast drawing to a close the prospect of limited storage withdrawals and a congested refill season is beginning to loom large.
January futures for the week skidded 19.6 cents to $1.990, which was January's first sub-$2 settle as the prompt month since Dec. 29, 1998, when it finished the day at $1.765.
Much of the week's demise was due to the 800 lb. gorilla on the trading desk, both near term and longer term mild weather forecasts.
The cash point showing the smallest weekly price dip was PG&E Citygate with a drop of 11 cents to average $2.53 and the biggest losers were Algonquin Citygate showing a decline of 70 cents to $1.82 followed closely by Tennessee Zone 6 200 L with a fall of 66 cents to $1.87.
Regionally the Northeast lost the most dropping 29 cents to $1.46, and California proved to be the most resilient giving up 20 cents to $2.21.
The Rocky Mountains were lower by 26 cents to $1.89 and the Midcontinent shed 25 cents to $1.86.
The Midwest, East Texas, and South Texas all dropped 23 cents to $1.94, $1.89, and $1.87, respectively. South Louisiana was lower by 22 cents to $1.88.
As for price weakness, the near-term problem is a broad ridge of above-normal temperatures, as much as 20 to 30 degrees above normal extending from Little Rock, AR, to Ottawa, Canada.
"After a mild week across much of the eastern U.S., record-breaking warmth will build for the second weekend of December," said AccuWeather.com meteorologist Renee Duff.
"Temperatures are forecast to climb to levels more typical of October, and for most of the East, high temperatures will range 10 to 20 degrees Fahrenheit above normal for this time of year. Temperatures in some areas could climb to 30 degrees above normal this weekend. Areas across the East will have several days in a row of record or near-record warmth through Monday. Some records that will be challenged have held since the 1800s."
On Thursday futures looked as though they were headed for a gain following an Energy Information Administration (EIA) storage report of a 76 Bcf withdrawal, about 12 Bcf greater than what the market was expecting. January futures had a mind of their own, however, giving up 4.7 cents to $2.015 after trading as high as $2.099. February lost 4.2 cents to $2.075.
With January futures hovering on either side of $2, traders are studying their data to see if the price level suggests that a market bottom might be near. Just prior to its expiration in late October, the November contract plunged to $1.948 and traders have to go back to the spring of 2012 to find the next occurrence of sub-$2 futures.
Tom Saal, vice president at FC Stone Latin America LLC in his work with Market Profile (MP) says "the next MP support is the bottom of a value area at $1.949 reached in calendar April 2012."
Saal admits that the lack of trading below $2 hampers useful analysis, but "a $1 handle is going to bring out a lot of buyers.
"A warm November makes the whole withdrawal season terrible, but I think we saw two winters ago that if it does get cold, we can burn a lot of gas," he said. "Demand is up because population is greater, we have bigger houses, and in the Southeast we have more electric power heat generated by gas. When gas is used for heating almost all the gas is used for heat, but with gas-generated electric heat it is inefficient, for it takes more gas to generate the heat."
Market technicians don't see a market bottom any time soon. "They [bear markets] don't end when the losers outnumber the winners and they don't end when the point of maximum assumed pain is reached," Walter Zimmermann of United Energy told NGI. "They end when chart patterns are completed to the downside, and that always seems to exceed by decisive margins rational expectations of what is possible on the downside.
"That is what crude oil is going through right now, and gasoil, and diesel, and natural gas through guilt by association. I think natural gas left to its own devices would just be sitting here not doing much of anything."
Going into the Thursday's market storage report traders were seeing a bit more uncertainty surrounding the figures. "The market this week is once again all over the lot; our Early View Average [last Friday] was -59 Bcf, and the range was a whopping -45 to -91 Bcf wide," said John Sodergreen, editor of Energy Metro Desk. "This week, it's tightened up to 20 Bcf wide: -53 to -73 Bcf. Bentek reports this week that it sees both high- and low-side risk inside the various storage zones. The Big B says its flow model came in at -66 and its S/D Model was lower at -60."
Last year, 47 Bcf was withdrawn and the five-year average comes in at a 65 Bcf pull. The Energy Metro Desk Survey showed a 62 Bcf average, and a Reuters survey of 26 traders and analysts showed an average 64 Bcf withdrawal with a range of -48 Bcf to -75 Bcf. PIRA Energy expected a decline of 62 Bcf, and industry consultant Genscape calculated a 69 Bcf pull.
Some traders were caught a little flat-footed by the data. "We were looking for a 64 Bcf number, so 76 Bcf is significant," said a New York floor trader. "I think this was a little bit of a surprise to most. I don't think that was in the market." He added that the number did seem a little strange given the mild weather and an average 5-year withdrawal of 65 Bcf.
Analysts see missed supply-side assumptions. "The 76 Bcf in net withdrawals was a clear bullish miss versus expectations," said Tim Evans of Citi Futures Perspective. "With the draw more than implied by the temperature data for last week we suspect a supply-side shift, either from US producers pulling back on production or possibly a drop in imports from Canada in response to low prices."
Using the new 5-region format inventories now stand at 3,880 Bcf and are 514 Bcf greater than last year and 236 Bcf more than the five-year average. In the East Region 9 Bcf were pulled, and the Midwest Region saw inventories fall by 26 Bcf. Stocks in the Mountain Region were lower by 8 Bcf, and the Pacific Region was down 14 Bcf. The South Central Region, closely similar to the former Producing Region, shed 19 Bcf.
In Friday's physical trading for weekend and Monday delivery, averages skewed sharply lower as traders saw little need to commit to three-day deals, and at the same time weather forecasts in major metropolitan markets called for temperatures to flirt with record highs.
New England points neared record lows. The NGI National Spot Gas Average dropped 20 cents to $1.58, but eastern points on average dropped close to 30 cents.
New England points were some of the hardest hit, but weather forecasts called for mild temperatures throughout the country. AccuWeather.com predicted the high Friday in New York City of 62 degrees would reach 63 Saturday and Monday. The normal high in New York is 44 this time of year. Dallas' Friday high of 75 was anticipated to retreat to 74 Saturday before falling to 67 Monday. The normal high in Dallas is 58 in mid-December.
Weekend and Monday gas at the Algonquin Citygate shed 40 cents to $1.07, and deliveries to Iroquois, Waddington dropped 45 cents to $1.42.
Gas on Tenn Zone 6 200L for the three-day period traded as low as 78 cents before reaching an average of $1.06, nearing the lowest ever average according to NGI data. The all-time average low for the point was $1.01, which was recorded on July 2, 2015.
Midwest quotes were not spared either. Gas on Alliance came in 17 cents lower at $1.74, and deliveries to the Chicago Citygate were quoted 21 cents lower at $1.75. Deliveries to Consumers changed hands down 17 cents to $1.75, and gas on Michigan Consolidated was seen 17 cents lower also to $1.76.
Major market hubs also suffered a double-digit drubbing. Gas at the Henry Hub skidded 14 cents to $1.77, and deliveries on Transwestern San Juan were off 19 cents to $1.76. Deliveries to Opal dropped 20 cents to $1.79, and gas at the SoCal Border Avg. fell 18 cents to $1.95.
Analysts point out that even significant fundamental changes in the demand landscape, such as coal-to-gas switching and inordinate drawdowns from storage, can't offset an ongoing weather regime of mild temperatures. "Mild temperature conditions that are still seeing no indication of significant change continue to weigh on this market, with bearish spillover from exceptionally weak heating oil futures adding to downside momentum," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients.
"Nearby futures have dropped to below our expected support at $2.05 even as yesterday's EIA storage report provided a sizable bullish miss of some 13 Bcf. The counter-intuitive response to the EIA data is underscoring an extremely heavy pricing environment that is forcing observers to look ahead to some smaller than normal supply draws as this month proceeds that should easily offset yesterday's contraction in the supply surplus. And with abnormally mild November and December weather conditions well entrenched, visions of an El Nino influenced mild winter are very easy to imagine. This is forcing the market to look even further down the road to next year when storage overcrowding could become a significant bearish item."
Gas buyers for power generation across the MISO footprint could expect weekend wind generation over the power pool to be highly variable. In its Friday morning report WSI Corp said, "Much above average temperatures are expected during the period. [Friday] will feature variably cloudy skies and high temps in the upper 30s, 40s and 50s north; 60s and 70s south. Conditions will change during the weekend into the start of next week as a robust storm system will develop over the central U.S. This storm may trigger heavy rain and strong thunderstorms across the Mississippi and Ohio Valley, while there may be a narrow swath of wet snow across the Upper Midwest. [Six- to 10-day] GWHDDs dropped 7.7 and are forecast to be 127.1 for the CONUS.
"Wind generation will sharply subside and become relatively light today into Saturday. The weekend storm will likely cause wind gen to ramp back up during Sunday into early Monday. The secondary system may provide another boost of wind gen during Tuesday. During these two spikes, output is forecast to peak 8-10 GW."