Physical natural gas for Friday delivery traded nominally higher Thursday as supportive power pricing and somewhat tempered weather forecasts enabled solid double-digit gains at eastern points.
Gains in the East, Mid-Atlantic and Marcellus region were able to out-lift weaker pricing in the Rockies and California, and the NGI National Spot Gas Average rose 4 cents to $1.78. The Energy Information Administration (EIA) reported a storage withdrawal of 34 Bcf for the week ending Dec. 11, catching by surprise traders who thought the drop would be closer to 40 Bcf.
At first the market response was somewhat circumspect, but at the close for the seventh consecutive trading session January had posted a decline, this time falling 3.5 cents to $1.755, but February added seven-tenths of a cent to $1.873. January crude oil slumped 57 cents to $34.95/bbl.
The storage withdrawal was so small it entered the record books. Going back to when storage data began to be logged in 1994, the 34 Bcf draw is the smallest withdrawal for the second week of December in 22 years. The prior low withdrawal for the second week of December was 43 Bcf, notched in 1994 and again in 2001.
The draw is even more bearish when you consider that the average of the second week of December's withdrawals between 1994 and 2015 is a 114 Bcf pull.
Commenting on the record thin storage draw and the recent record lows recorded by the January natural gas futures contract, one Midwestern industrial end-user said it appeared to be the new normal. “We’re living in a time when records are meant to be broken.”
Analysts will often rely heavily on weather-based statistical models to make their estimates of weekly storage withdrawals, but with natural gas aggressively displacing coal from the power generation matrix, those estimates become more difficult. Going into Thursday's report, analyst estimates were in the 40 Bcf withdrawal area. Stephen Smith Energy was looking for a pull of 39 Bcf, and a Reuters poll of 21 traders and analysts showed a range of draws from 28 Bcf to 67 Bcf, with an average 40 Bcf pull expectation. ICAP Energy calculated a 44 Bcf withdrawal. Last year 62 Bcf was withdrawn and the five-year pace was a 120 Bcf pull.
When the number was announced traders weren't quite sure what to do. January futures fell to a low of $1.782, but by 10:45 a.m. EST January was trading at $1.789, down a miserly one-tenth of a cent from Wednesday's settlement.
"We were hearing numbers in the 38 Bcf range, so it’s not a crazy number off the mark," said a New York floor trader. "I'm hearing this market could go to $1.50 on the downside, and you have to look at $1.75 and $1.50 support and $2.00 resistance."
Tim Evans of Citi Futures Perspective called the report "clearly bearish" and said "combined with the ongoing forecasts for warmer than normal temperatures in the eastern U.S., we don't see potential for more than a short-term technical bounce."
Evans was expecting a 43 Bcf withdrawal, and going forward he sees "the year-on-five-year average storage surplus climb[ing] from 236 Bcf as of Dec. 4 to 489 Bcf as of Jan. 1. While the growth in natural gas supply is a background factor for the market and we view the price decline as putting pressure on U.S. producers to leave more gas in the ground, the immediate cause has been persistent warmer than normal temperatures, especially in the key population centers of the Midwest and Northeast."
Evans, however, continues to look for a "relief rally" and suggests playing the market from the long side. He recommends entering the market with a buy stop in the February contract at $2.08 with a protective sell stop at $1.78 to limit risk on the trade.
Using the new five-region format inventories now stand at 3,846 Bcf and are 541 Bcf greater than last year and 322 Bcf more than the five-year average. In the East Region 16 Bcf were pulled, and the Midwest Region saw inventories fall by 17 Bcf. Stocks in the Mountain Region and Pacific region were unchanged, and the South Central Region, closely similar to the former Producing Region, shed 1 Bcf.
In physical market trading next-day gas in New England posted solid gains as near term temperature forecasts showed a trend lower to more normative levels. AccuWeather.com forecast that Boston's Thursday high of 51 would slide to 50 Friday and 41 Saturday, just a degree above normal. New York City's 58 high on Thursday was seen dropping to 48 Friday and 40 on Saturday, two degrees below normal.
Gas at the Algonquin Citygate jumped 48 cents to $2.36, and deliveries to Iroquois, Waddington gained 6 cents to $1.92. Gas on Tennessee Zone 6 200 L jumped by 37 cents to $2.29.
Packages Deliveries to Texas Eastern M-3, Delivery added 8 cents to $1.27 and gas bound for New York City on Transco Zone 6 gained 26 cents to $1.74.
Firm next-day spot power also increased the appeal for incremental gas purchases for power generation. Intercontinental Exchange reported that on-peak power at the PJM West terminal rose $3.29 to $35.12/MWh. Next-day peak power at the New York ISO Zone A (western New York) trading point gained $2.00 to $28.00.
Pricing continued to converge between Marcellus/Utica points and locations further downstream on the westward-flowing REX Zone 3 Expansion. Marcellus points gained a few pennies while interconnects in Illinois and Indiana were flat to lower.
Next-day gas on Dominion South rose 6 cents to $1.11, and deliveries on Tennessee Zn 4 Marcellus gained 2 cents to $1.06. Parcels on Transco-Leidy Line added 2 cents to $1.09.
At the Putnam Country, IN, interconnect with Panhandle Eastern gas on REX Zone 3 changed hands flat at $1.78, and gas at Douglas County, IL, into Trunkline fell a penny to $1.77. Deliveries to NGPL at Moultrie County, IL, were seen a penny higher at $1.77.
Medium-term weather forecasts finally broke the string of successive warmer iterations. WSI Corp. in its morning report said "Thursdays] 11-15 day period forecast is now several degrees cooler over the West, whereas a touch cooler over the East when compared to yesterday's forecast. CONUS GWHDDs have risen by +2, coming in at 100.2 for the period. Forecast confidence is considered slightly above average standards due to excellent agreement between the models.
"Temperatures could come in colder across the Rockies and Plains during the latter half of the period as heights begin to rise over the Northwest," WSI Corp. said.