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Weather Firmly In Control Of NatGas Forwards; Nov. Adds 10 Cents

At long last, it appears that wintry weather will finally makes it way across the middle of the country in the weeks to come, and with enough staying power to send November natural gas forward prices up an average 10 cents from Oct. 6 to 12, according to NGI’s Forward Look.

Markets were off to a slow start, however, as weather forecasts earlier in the week showed substantially warmer temperatures for late October. In fact, actual temperatures through Oct. 8, and then-forecasts through Oct. 23, were projected to match prior record warmth for the period, according to analysts at Mobius Risk Group. With such dismal outlooks, the Nymex November gas futures contract slid 3 cents to $2.833.

A bounce in cash prices and supportive supply/demand data led to a rebound Tuesday, when the prompt-month gained 5.8 cents. Wednesday’s action was relatively muted as the November contract went unchanged, although prices did experience some intraday volatility.

Thursday saw significantly more action, but not from the weekly storage inventory report that often creates price swings. Rather, it was a dramatic reversal in weather trends that sent the November futures contract up 10 cents on the day to settle at $2.989, above the 40-day moving average of $2.965.

Weather guidance overnight and throughout Thursday supported a significant amount of cold air moving into the center of the country in the 13-16-day time frame, with a chance for more staying power for that cold, according to forecasters at Bespoke Weather Services.

“This indicates the first time this season where heating demand will truly be able to get above average, and will allow us to see how truly tight this market is on a heating demand-adjusted basis as we head into the winter,” Bespoke said.

Bespoke said it sees weather as now firmly in control of the gas market, with continued cold into early November likely to rally prices even higher, while a trend against sustained cold for the first portion of November would be likely to stop any rally in its tracks or even push it back a bit lower.

Weather forecasters at NatGasWeather were quick to point out that while stronger demand is indeed expected across the northern and eastern United States in the weeks to come, it will also result in the loss of cooling demand across the southern U.S. as temperatures in that region drop into the mostly comfortable range with plenty of 70s to lower 80s.

“We are essentially replacing CDDs [cooling degree days] with HDDs [heating degree days], keeping overall national demand near to slightly stronger than normal. Thus, minor impacts on supplies; it just might be a little closer to what the markets prefer as they've been impatiently waiting on this very warm October pattern to come to an end,” NatGasWeather said.

The forecaster added that there are also no guarantees that reinforcing colder air will follow Oct. 28-31, as the Canadian model suggests warming will follow this system, while the global and European models also hint at warming, just not as aggressively.

Meanwhile, Friday’s weather guidance was slightly less bullish, but Bespoke said there remains sufficient long-range bullish cold risk for gas prices to at least test resistance in the $3.06-$3.10 range. Should prices fall back, though, Bespoke noted strong support around $2.88.

It does appear that, at least for now, market bulls are back in control. Even a somewhat bearish storage report from the U.S. Energy Information Administration (EIA) did little to stop Thursday’s rally.

The EIA reported an 87 Bcf injection in storage inventories for the week ending Oct. 6, bringing stocks to 3,595 Bcf. The injection was about 5 Bcf above market consensus, above last year’s 79 Bcf injection and right in line with the five-year average. Stocks were 153 Bcf less than last year at this time and 8 Bcf below the five-year average of 3,603 Bcf.

"We took a little dive once the number came out, but did not take out the low from overnight trading," said a New York floor trader Thursday. "The market fell down to $2.93 and then rallied back up. Interesting scenario, interesting results, but we are still stuck in a range, so it is not as if anything has changed."

Still, even after a neutral to slightly bearish EIA print yesterday prices were able to continue marching higher, and this resilience represented a significant amount of buying interest that should continue into the weekend, Bespoke said.

Indeed, the Nymex November contract remained in the black throughout Friday, trading in a tight range of about 5 cents and eventually settling 1.1 cents higher at $3.00.

On a technical basis, though, it appears the contract could see some retracement during the week based on historical trading patterns, NGI’s Patrick Rau, director of strategy and research, said.

“The simple 200-day moving average (MA) has provided pretty strong resistance for the November contract, and it looks as though that is happening again today. November has reached an intraday high of $3.036 so far today, a bit short of the 200 MA of $3.051. Based on trading patterns since late May, that will likely lead to a fall back early next week,” Rau said.

Rau did say, however, that while stochastics and the relative strength indicator RSI are rising, they still have yet to reach overbought territory, so if November is able to ride the recent momentum above the 200 MA, the next resistance areas are $3.13, marked by the top of the current 20-day Bollinger Band, and $3.17, which is the most recent reactionary high.

Looking at the front of the Nymex futures strip, the November contract climbed 12 cents from Oct. 6 to 12 to reach $2.989. December was up 10 cents to $3.144, while the balance of winter (December-March) was up 8 cents to $3.22.

On a national level, November forward prices rose an average 10 cents, December picked up an average 9 cents and the balance of winter (December-March) tacked on 8 cents, Forward Look data show.

California Gas Prices Strong Despite Ongoing Fires

California gas markets put up similarly stronger increases even as ongoing wildfires in the state have tempered demand. The strength could reflect the market’s confidence that gas demand will return once the fires have been contained.

California fire, emergency response, law enforcement and Federal Emergency Management Administration (FEMA) officials reported that around 20 fires, most bolstered by high winds, raged statewide and most of them, including the ones in the Napa and Sonoma wine country region, were mostly uncontained as of Thursday.

California Department of Forestry and Fire Protection officials said Thursday that some 190,000 acres had been scorched across the state — a collective area nearly the size of New York City — as dangerous conditions spread the fires with frightening speed. At least 31 fatalities had been reported.

Meanwhile, the National Weather Service on Friday said dry, gusty winds and low humidity will hinder firefighting efforts through Saturday night.

In the Santa Rosa/Sonoma area, an estimated 34,000 customers were without gas service and 40,000 did not have power on Wednesday. In Napa County, there were 6,700 electric outages and 1,700 gas outages, according to PG&E.

“Those shut-ins are believed to be mostly precautionary measures as opposed to immediate responses to known damage, suggesting service should be restored fairly quickly once the fires are contained and inspections completed,” said data and analytics company Genscape Inc.

In Southern California, the Canyon fire in the hills of Orange County was more contained and less problematic, given the absence of high winds over the past two days. Southern California Edison Co. reported less than two dozen customers without power Wednesday night.

The fires have had a mostly bearish effect on gas demand in the region as PG&E on-system demand has been running below 2 Bcf/d the past few days, Genscape said Wednesday. This has pushed the month-to-date average down to 1,836 MMcf/d, about 300 MMcf/d below last year’s levels and 350 MMcf/d below the prior three-year average for October.

A look at NGI’s Daily Price Index, however, shows gas prices in the region have actually strengthened the last several days. PG&E next-day gas traded Oct. 6 at $3.09 but then climbed to $3.16 by Oct. 12. SoCal border next-day gas rose from $2.61 to $2.69 during the same time frame.

Part of this strength could be attributed to an increase in power generation to offset the loss of imports. PG&E’s noncore electric generation data for Wednesday indicated a 14-day high of 535 MMcf/d, which is 90 MMcf/d above the average for the prior five-day workweek, according to Genscape.

“Unfortunately, we don’t have enough granularity in nominations to determine which plants are taking more gas for power. However, our WECC [Western Electric Coordinating Council] has noted they saw upticks in generation to offset lower power imports,” the Louisville, KY-based company said.

That price strength in the cash market spilled over into forwards as well. PG&E November forward prices jumped 13 cents from Oct. 6-12 to reach $3.184. Smaller gains were seen further out the curve, with December and the balance of winter (December-March) climbing 8 cents to $3.234 and $3.23, respectively, according to Forward Look.

At SoCal Border, November was up 12 cents during that time frame to $2.709, December was up 10 cents to $3.113 and the balance of winter (December-March) was up 7 cents to $3.06.

Unplanned Pipeline Outage Leaves Appalachian Prices In Red

Appalachian pricing locations moved against the pack as an unplanned outage on the Texas Eastern Transmission (TE) gas pipeline limited flows out of the region.

The pipeline on Oct. 11 experienced an unplanned outage south of its Berne compressor station (Berne). During an excavation on the pipeline in Noble County, Ohio, soil movement was observed while TE was installing a test manifold for a hydrostatic test of the pipeline. To ensure the integrity of the pipeline, TE isolated the two lines in the area resulting in the capacity south through Berne going to zero.

Between Oct. 11 and 12, Genscape reported that southbound flows had dropped from 2.402 Bcf/d to 489 MMcf/d.

The pipeline has issued issued several notices on its website related to the outage, as the unplanned work is affecting several of its market zones. While the pipeline has not indicated when the maintenance will end, it did expect it to be “a matter of days.”

Given the uncertainty over when the work will be completed and the substantial declines seen in the spot market, Dominion South November forward prices fell 6 cents from Oct. 6 to 12 to reach $2.056. December managed to edge up 2 cents to $2.571 and the balance of winter (December-March) climbed 5 cents to $2.73, Forward Look shows.

Along the TE pipeline, the M-2, 30 Receipt point saw November slip 5 cents to $2.061, while December rose 3 cents to $2.609 and the balance of winter (December-March) moved up 4 cents to $2.77.

At TE M-3, November was down 1 cent to $2.312, December was up 7 cents to $3.412 and the balance of winter (December-March) was up 6 cents to $4.30.

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