Once again the prior week's change in natural gas futures correctly identified the week's change in weekly spot prices. For the week ended Oct. 21 November futures plunged 29.2 cents, and for the week ending Oct. 28 the NGI Weekly Spot Gas Average fell 23 cents to $2.48.
Next week the outlook for prices isn't looking very good either, because December futures for the week ended Oct. 28 plunged 25.6 cents to $3.105. The point with the week's greatest gain was Algonquin Citygate with a rise of 71 cents to average $3.14, and the market point showing the greatest decline was Transco Zone 5 North in the Southeast with a drop of 68 cents to average $1.79.
Regionally the Northeast rose the most with an advance of 34 cents to $2.33 followed closely by Appalachia with a gain of 26 cents to average $1.42. The Southeast fell the most dropping 45 cents to $2.50.
South Louisiana gave up 38 cents to average $2.63 and both East Texas and South Texas fell 36 cents to $2.70 and $2.66, respectively. The Midcontinent retreated 32 cents to $2.61 and the Midwest faltered 30 cents to $2.71. The Rocky Mountains fell 29 cents to $2.51 and California lost 26 cents to average $2.76.
December futures fell 25.6 cents to $3.105 and November futures went off of the board Thursday at $2.764, down 18.8 cents from the October contract.
Thursday's trading saw the Energy Information Administration (EIA) report a storage injection of 73 Bcf for the week ending Oct. 21, and futures prices stabilized. At the close Thursday the expired November contract went off of the board at $2.764, up 3.3 cents, and December added 3.2 cents to $3.068.
Futures bulls were able to breathe a small sigh of relief as prices steadied following the release of EIA storage figures that the industry had already largely factored in. As soon as the 73 Bcf flashed across trading screens, the expiring November futures contract reached a low of $2.725, but by 10:45 a.m. November was trading at $2.740, up nine-tenths of a cent from Wednesday's settlement.
Traders noted that natural gas from the December contract onward is still a $3 market despite the price implosion of the previous 6 days. "You have got $3 all the way back to March 2018, so you are in good shape in regards to $3," said a New York floor trader.
"The 73 Bcf in net injections for last week matched the major newswire surveys and was more than the 68 Bcf date-adjusted build from a year ago," said Tim Evans of Citi Futures Perspective. "It was still just below the 77 Bcf five-year average, although close enough to be considered neutral rather than bullish. Overall, we don't see today's data changing anyone's view."
Inventories now stand at 3,909 Bcf and are 52 Bcf greater than last year and 182 Bcf more than the five-year average. In the East Region 14 Bcf was injected and the Midwest Region saw inventories increase by 22 Bcf. Stocks in the Mountain Region rose 2 Bcf, and the Pacific Region was up 1 Bcf. The South Central Region added 34 Bcf.
Traders who correctly guessed the decline are now trying to figure out the market's next move. "I was looking for a move into the $2.90 area [December] and Wednesday it got that," said Alan Harry, director of trading at McNamara Options in New York.
"I think the low part of the range is $2.91 to $3.01, but the market hit it yesterday and it spent no time there. I am looking for a pullback into that range and I don't think we go much lower than $2.90 for now. From there we will have some concerns on what we do with the winter.
"We may also break a record as to how much storage we have in natural gas, so that doesn't help prices, but the move up was all on speculation, and when it came time for the contract to settle, prices collapsed. [Speculators rarely take physical delivery].
"I still think we have another move up here on the back of some weather patterns a couple of weeks down the road. For now I think we are looking at sideways market movement. The range is $2.90 to $3.30 and a break above $3.30 would be a buy signal."
In Friday's trading natural gas for weekend and Halloween Monday delivery was short on thrills and chills as near-term temperature outlooks continued at well above seasonal levels, and power market pricing offered little incentive to make incremental purchases for power generation.
The NGI National Spot Gas Average on Friday fell 12 cents to $2.35, and only a few points made gains. Futures managed a small gain, and at the close December was higher by 3.7 cents to $3.105 and January had advanced 2.6 cents to $3.263. December crude oil fell $1.02 to $48.70/bbl.
Ongoing mild temperature forecasts and inventory levels on track to surpass last year's record 4 Tcf are keeping market bulls on the sidelines for now. "Although this huge price plunge of the past couple of weeks has extended much further than we had anticipated, we still caution against attempts to pick a bottom given continued mild temperature forecasts that could soon be extending toward mid-November," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.
"Weekend updates to these views will have a large impact on next week's trade and as a result, shorts will likely be on the defensive in [Friday's] trade while looking for reasons to accept profits. From a technical perspective, this market is now much oversold and due for a show of price support. We expect this support to develop at about the $2.95 level per the newly prompt December contract. While this would imply another round of fresh lows, we don't expect significant downside follow-through.
"In other words, we don't view sub-$3 December gas futures as sustainable and we will look for the first shift toward colder than normal temperature trends to spark a significant price upswing. Our initial attempt toward a bullish strategy will be to establish bull spreads such as long March 2017-short September 2017."
The seeds for a significant price upswing may be being sown. Data shows declining production year-on-year. "With October nearing its close, Lower 48 production for the month is set to come in about 2.15 Bcf/d below last October," said industry consultant Genscape in a report. "Spring Rock's Daily Pipe Production estimate shows today's estimate just over 71 Bcf/d, just a tick over the month-to-date estimate at 70.91 Bcf/d. October 2015 volumes averaged 73.0 Bcf/d.
"Every macro production region showed declines except the East (up 1.28 Bcf/d YOY) and New Mexico Permian (+0.03 Bcf/d YOY). The largest declines are in Texas (down -1.29 Bcf/d YOY), Midcon (-1.01 Bcf/d YOY), and Rockies (-0.53 Bcf/d YOY)," Genscape said.
In the physical market Midwest deliveries for weekend through Monday delivery took a hit as temperature forecasts proved to be benign. Wunderground.com forecast that Friday's high of 66 in Chicago would rise to 71 Saturday before subsiding to 67 by Monday, 9 degrees above normal. New York City's 49 high Friday was expected to reach 64 on Saturday, before subsiding to 54 Monday, 6 degrees below normal.
Gas on Alliance fell 21 cents to $2.52, and deliveries to the Chicago Citygate shed 16 cents to $2.57. Deliveries to Consumers fell 11 cents to $2.59, and gas on Michcon skidded 11 cents to $2.58.
Mid-Atlantic deliveries also weakened. Gas on Tetco M-3 Delivery fell 12 cents to $1.19, and gas bound for New York City on Transco Zone 6 fell 47 cents to $1.26.
Monday power prices were little changed. Intercontinental Exchange reported that on-peak Monday power at the Indiana Hub fell 13 cents to $33.50/MWh, and power delivered to PJM West rose 69 cents to $30.69/MWh.
Gas buyers having to make purchases for electric generation across the MISO footprint over the weekend should have plenty of renewables to work with. "Fair, breezy and warm weather is expected across much of the power pool during the next two days ahead of a frontal system along the Canadian border," said WSI Corp. in a Friday morning report to clients. "A southwest flow ahead of a cold front will lead to a surge of anomalous warmth with max temps in the upper 60s, 70s to mid-80s. The aforementioned cold front will sag southward as the weekend progresses.
"The first frontal system will lead to period of strong wind generation [Friday] into tonight. Wind gen will decrease and become light by midday Sunday. The second frontal system will lead to another surge of strong wind gen during Sunday night through Monday. Output is forecast to peak 8-10+ GW with each spike of output."