Weekly traders were able to shrug off another backbreaking rise in natural gas storage and instead concentrated on the arrival of the first shot of a winter-like chill for the week ended Nov. 18. That was enough to send both futures and cash higher by double-digits and the NGI Weekly Spot Gas Average vaulted 24 cents to $2.29.
For all the strength in the US markets Canadian points demonstrated both the highest and lowest gains. No point followed by NGI fell into the loss column; Westcoast Station 2 sported the week's greatest gain with an advance of $C0.76 to $C2.25/Gj and Empress brought up the rear with a $C0.12 rise to $C2.55.
All regions demonstrated solid double-digit gains with the range spanning the Midcontinent with a 21-cent improvement to $2.25 to California and the Southeast with 28-cent moves to $2.46 and $2.42, respectively.
Appalachia rose 22 cents to $2.01 and East Texas and the Northeast putting up 23 cents to $2.36 and $2.29, respectively.
The Midwest added 24 cents to $2.36, South Texas and South Louisiana both rose 26 cents to $2.35 and $2.37, respectively, and the Rocky Mountains gained 27 cents to $2.20.
December futures tacked on 22.4 cents to settle at $2.843.
Thursday the EIA reported a storage build of 30 Bcf for the week ending Nov. 11, a touch less than what surveys and estimates by analysts were expecting, but the build placed storage inventories in new record territory for the second straight week. At the close December had dropped 6.1 cents to $2.703, and January was lower by 4.5 cents to $2.875.
Natural gas futures tumbled to session lows once the storage figures were released, although the injection was about in line with market expectations. December futures reached a low of $2.690 immediately after the figures were released, and by 10:45 a.m. EST, December was trading at $2.693, down 7.1 cents from Wednesday's settlement.
"We were hearing 31 Bcf so there wasn't much of a difference there," said a New York floor trader. "I didn't think a 30 Bcf build versus a 31 Bcf would make all that much difference. We've been above the one-year and five-year storage averages for how long now? There just isn't any upward swing to this market."
Others also recognized the broader bearish implications. "The 30 Bcf net injections was in line with consensus expectations and so neutral on that score," said Tim Evans of Citi Futures Perspective. "At the same time, we do note the bearish comparison with the 3 Bcf five-year average figure, as well as the total reaching a new all-time high of 4,047 Bcf. So perhaps the bottom line on the report is that it was fundamentally bearish, as expected."
Market technicians continue to give an edge to the upside. "Bulls now need to clear $2.834-2.860, thanks to this congestion," said Brian LaRose, a market technician at United ICAP prior to Thursday's trading. "Bears still need to take out the $2.546 low. Clear resistance and an extended multi-day drift to the upside becomes possible from here.
"Take out the low before resistance can be breached and Natgas has room down to $2.489-2.441-2.424, even $2.281-2.205. The short-term technicals still suggest the bulls have the edge here."
Inventories now stand at 4,047 Bcf and are 51 Bcf greater than last year and 216 Bcf more than the five-year average.
Working gas in storage has set an all-time record two weeks running. Current storage levels sit 38 Bcf above last year's high mark of 4,009 Bcf for the week ending Nov. 20, 2015, which previously held the record until last week. EIA's demonstrated maximum capacity for storage is 4,343 Bcf.
For the week, the East Region saw 2 Bcf withdrawn and the Midwest Region saw inventories increase by 7 Bcf. Stocks in the Mountain Region rose 4 Bcf, and the Pacific Region was up by 1 Bcf. The South Central Region added 20 Bcf.
In Friday's trading both cash natural gas and futures bounded higher. Cash buyers didn't want to get caught short over the weekend before cooler weather expected to knock close to 20 degrees off recent highs. Speculative futures traders elected to enter the market on the long side.
The NGI National Spot Gas Average jumped 29 cents to $2.45, and with the exception of a couple of points that traded unchanged, all other market points were solidly higher deep into double digits. Futures opened higher and never looked back. December rose 14.0 cents to $2.843 and January gained 10.5 cents to $2.980. December crude oil gained 27 cents to $45.69/bbl.
Some observers postulated that the current cold ripping across the Midwest could be aiding futures gains, but others saw heavy speculative buying interest in play. "This system will track into the eastern U.S. this weekend to bring a surge in natgas demand, highlighted by overnight lows dropping into the teens and 20s behind the cold front," said Natgasweather.com in a noon update. "Another milder break is expected during the middle of nexta week in the wake of this system before additional weather systems track across the country late in the week and through the following weekend."
Others saw spec buying at work. "There were a lot of spec shorts at these levels or lower, and they had to cover," said Alan Harry, director of trading at McNamara Options in New York.
"There was a lot of buying in the December $3 calls, and if we get some weather, they could move sharply higher. We could see $3.21 in the January contract, although this is a fundamentally oversupplied market.
"I'm just going off what I see the speculators doing," he said.
Near-term weather may be supportive, but the longer-term forecasts may prove ominous to natural gas bulls. Forecasters see no consistent changes to the longer-term weather outlook. "[Friday's] 11-15 day period forecast changes are mixed. Colder revisions were made over the Northeast, interior West and even the Midcontinent late in the period," said WSI Corp in its Friday morning report. "CONUS GWHDDs are up 0.6 for days 11-14 to 100 for the whole period, which are 18 below average."
Mild near-term weather may already be incorporated into the market. "Mild expectations are beginning to stretch into the month of December in forcing long-term forecasts back toward the likelihood of another mild winter that will be slowing storage withdrawals," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "These drawdowns will likely begin to show up within the EIA report to be released two weeks from today. This week's mild temperature trends will likely be driving one last injection that will probably lift supply to a record peak to between 4.05 and 4.06 Tcf.
"Storage excess against five-year averages has been increasing in recent weeks to a level that is now some 216 Bcf, or 5.6%, above five-year averages, a sizable cushion available to meet the needs of a colder than normal winter. But while these items would appear to paint a bearish picture, we feel that much bad news has already been baked in and that any surprises on the weather or production fronts are much more apt to be bullish than bearish from here. But at the same time, we continue to caution against attempts to pick a bottom to this recent $1 price plunge without assistance from a significant shift in the weather outlooks."
In physical market trading, prices shot higher as forecasts called for a sharp temperature drop from recent highs. AccuWeather.com forecast that New York City's Friday high of 65 degrees would ease slightly to 63 Saturday before plunging to 44 on Monday, 9 degrees below normal. Chicago's Friday high of 62 was expected to drop to 41 Saturday before rising to 45 Monday, 2 degrees below normal.
Gas at the Algonquin Citygate soared $1.26 to $3.17, and gas on Tenn Zone 6 200L rose $1.24 also to $3.29. Deliveries to Texas Eastern M-3, Delivery gained 48 cents to $2.31, and gas headed for New York City on Transco Zone 6 was quoted 58 cents higher at $2.41.
Gas buyers tasked with procuring incremental supplies for power generation across PJM were expected to have plenty of wind generation to work with. "High pressure will continue to slide across the Mid-Atlantic today ahead of a vigorous storm system over the central U.S.," WSI said. "Partial sunshine and a southerly breeze will lead to above-average temperatures with highs in the 60s and 70s. The aforementioned storm system along with its trailing cold front will sweep across the power pool this evening through Sunday morning with a narrow swath of rain, a few thunderstorms and changeable conditions.
"A gusty south- to west-northwest wind associated with the storm system will lead to a period of strong wind generation today through Sunday. During this surge, output is forecast to peak [at] 4-6 GW."