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Natural Gas Futures Slide Amid Oversupply Concerns; New England Spot Prices Surge

Natural gas futures pulled back sharply at the start of the first trading session of injection season Monday, with near-term cold trends not enough to inspire the bulls in a well-supplied market. Spot prices were mixed, with a few New England points posting strong gains amid wintry weather in the region; the NGI National Spot Gas Average finished six cents higher at $2.54/MMBtu.

After trading up a few cents prior to the open, the May contract dropped sharply after 9 a.m. EDT, eventually settling at $2.683, down 5 cents on the day. The June contract settled 4.6 cents lower at $2.732.

“May natural gas prices were wandering slightly higher overnight but got hit by heavy selling Monday morning as weekend balance data and expectations for Thursday’s Energy Information Administration (EIA) print show a market that is increasingly dealing with oversupply,” Bespoke Weather Services said. “Weather remains quite supportive, and afternoon model guidance maintained most bullish risks, which is one of the few catalysts that could present a bit of short-term upside for prices.

“However, models remain mixed in the long-range, though afternoon European guidance joined American guidance in showing one last cold shot mid-month after warmth,” the firm said. “The pattern does not look to hold as many risks for cold being nearly as intense as in the short-term, and we do expect that in the second half of the month cold gradually eases, which should keep weather from being as bullish” over the next couple weeks.

Following last week’s EIA storage report “weather-adjusted supply/demand balance takes another slide toward parity from the undersupply scenario we've been seeing all winter,” analysts with Tudor, Pickering, Holt & Co. (TPH) said Monday. The 63 Bcf withdrawal reported for the week ending March 23 comes in about “1 Bcf/d lighter than analyst expectations, implying a near-balanced market. Expect to see an inflection point in storage levels as injection season draws nigh.”

Early storage estimates for the week ending March 30 “indicate the draw will nearly halve week/week,” said TPH. “With production levels in March some of the highest on record and continued upside from impending takeaway capacity, we expect a step-change to oversupply in the coming months.”

As of March 29, Intercontinental Exchange futures for this week’s storage report had settled at a withdrawal of 22 Bcf.

“If you take a look at the chart in natural gas, we have some colder weather, but it’s now below-normal April and not below-normal March, so our average keeps going up,” Powerhouse President Elaine Levin told NGI Monday. “Pretty soon it’s going to be harder and harder to score those degree days going into spring.”

Levin also noted that Monday’s natural gas futures declines came amid a broader sell-off in the stock market and for other energy commodities. She pointed in particular to recent rhetoric that has increased concerns over a possible trade war.

“With the stock market down, oil went, natural gas went, it all went,” she said. “Any commodity that we export now is starting to have some reasons to worry, I think. It may turn into nothing, but what if this escalates?”

In the spot market, New England points gained as the National Weather Service (NWS) on Monday warned of “yet another winter storm impacting a large portion of the country.” NWS said the focus would be to the north “where very cold air will be in place extending from portions of the northern Plains and upper Midwest east across the Great Lakes and over far northern New England.

“A swath of heavy snowfall is expected across these areas Tuesday and into Wednesday, with locally as much as a foot of snow occurring. The heavier totals will most likely be focused over portions of central Wisconsin and lower Michigan. Temperatures on Tuesday will be very cold particularly across the northern Plains with daytime readings as much as 30 degrees below normal.”

In its one- to seven-day outlook Monday, NatGasWeather said that “after a brief mild break Tuesday, another weather system will sweep across the northern and eastern U.S. Wednesday to Friday, but with a stronger cold front where overnight lows will reach the teens to 30s.

“The western and southern U.S. will be mostly mild to warm due to high pressure, leading to comfortable afternoon temperatures of 60s to 80s, although locally a touch hot with 90s over the southwest and South Texas.”

Algonquin Citygate jumped $1.83 to $4.81, while Tennessee Zone 6 200L added $1.33 to $4.57.

Citing “impending colder weather,” the oft-constrained Algonquin Gas Transmission LLC put an operational flow order into effect Monday “in order to maintain the operational integrity” of its system.

Further upstream in Appalachia, Dominion South dropped 5 cents to $2.43, while Columbia Gas shaved off 4 cents to $2.51.

According to Genscape Inc., Columbia Gas is planning to perform maintenance Tuesday and Wednesday “on its Lone Oak compressors, associated with the new Leach XPress” Appalachian takeaway expansion.

“This will affect approximately 300 MMcf/d of non-firm volumes through the Lone Oak A and Lone Oak B segments, and will likely cause re-routes from the Majorsville Processing Plant onto” Texas Eastern Transmission Co. (Tetco), “and possibly shut in a portion of production at the Gibraltar III gathering system,” Genscape said. “Gibraltar III represents new production coming online with the in-service of the new Leach XPress lines.”

In the Midcontinent, Northern Natural Ventura climbed 4 cents to $2.65.

Northern Natural Gas on Monday put out an operational alert for Wednesday’s gas day affecting all market area zones. The pipeline operator said it’s expecting a system-weighted average wind-adjusted temperature of 15 degrees Wednesday, with overnight lows of close to 5 degrees in its market area.

“Colder than normal system weighted temperatures combined with limited operational flexibility due to low physical storage inventory at this time of year requires Northern to be properly balanced on receipts into the Market Area,” the operator said.

A number of Rockies points posted double-digit gains Monday as Genscape was forecasting regional demand to rise to 2.18 Bcf/d Tuesday, close to 1 Bcf/d higher than Monday’s demand total of 1.28 Bcf/d. Cheyenne Hub added 10 cents to $1.98.

In California, SoCal Citygate jumped 31 cents to $3.36 as Southern California Gas Co. (SoCalGas) was expecting system demand to tick higher to start the work week.

SoCalGas was forecasting demand to total around 2.3-2.4 Bcf/d over the next several days, up from around 2 Bcf/d on Sunday. The utility is also dealing with yet another restriction, announced last week, affecting imports through the its Southern Zone.

Further upstream in West Texas, prices strengthened across the board Monday. Waha climbed 25 cents to $2.08.

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