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Cold Weather, Surging Production Keep Natural Gas Futures Near Even; Midwest Cash Falls

Supportive April cold trends helped front month natural gas futures rally to near even Monday as strong production remains a bearish influence on the market. Spot prices fell across the middle of the country as national demand looks to drop off through the week, while SoCal Citygate led a host of gainers in the West; the NGI National Spot Gas Average fell 3 cents to $2.85/MMBtu.

The May contract settled at $2.693 Monday, down 0.8 cents on the day after trading as low as $2.640. Further along the strip, June settled 1.6 cents lower at $2.731, while July dropped 2.4 cents to settle at $2.780.

NatGasWeather.com pointed to a colder-trending midday run of the Global Forecast System (GFS) to explain an afternoon rally in the May contract, which was trading several cents lower earlier in the day.

“The GFS model has been notably colder than the rest of the data for next week into the following, and was even further colder trending in the latest midday data,” the firm said Monday, adding that “the Canadian and European models haven’t been nearly as cold.”

After a stretch of mild temperatures across the Great Lakes and East Coast later this week, a “weather system and cold shot follows this weekend across the central U.S., slowly advancing toward the East by early next week, where temperatures will again be 10-25 degrees colder than normal as highs only reach the 40s and 50s, while also seen as colder trending in recent days,” the firm said.

While weather remains supportive, Bespoke Weather Services said recent production data likely influenced the selloff Monday morning.

“Production hit new records over the weekend, and we have seen evidence of how much this has loosened the natural gas market” in each of the last four Energy Information Administration (EIA) storage reports, Bespoke said. Price action along the strip suggested “that selling was far more about balance and production than about short-term catalysts such as weather.”

Nuclear outages increased over the weekend to provide support for prices, according to the firm, which added that “currently very impressive” weather-related demand would likely need to hold up to sustain prices above $2.70.

Genscape Inc. said Monday its production data shows Lower 48 natural gas output approaching the 79 Bcf/d mark.

“Production appears to have fully recovered from freeze-offs and other short-term disruptions to close in on the 79 Bcf/d mark,” Genscape told clients. “SpringRock’s daily pipe production estimated weekend production reached 78.91 Bcf/d Sunday,” with Monday’s volumes “estimated at 78.61 Bcf/d, but upward revisions are likely; during the past two weeks we have been seeing daily upward revisions, averaging 550 MMcf/d.

“...Relative to March, production is running nearly 1.1 Bcf/d higher led by 0.47 Bcf/d of growth in Texas, 0.25 Bcf/d in the Midcontinent, 0.24 Bcf/d in the Northeast, and 0.22 Bcf/d in the Rockies,” the firm said.

Turning to the spot market, prices fell sharply in the Midwest Monday as strong demand to start off the week was expected to give way to much milder conditions over the next several days.

Chicago Citygate tumbled 20 cents to $2.69, while Joliet gave up 18 cents to $2.72. In the Midcontinent, Northern Natural Ventura eased 20 cents to $2.66.

According to Genscape, Midwest regional demand topped out at 17.48 Bcf/d over the weekend but was expected to drop to 13.70 Bcf/d by Tuesday.

“The remnants of a cold front sweeping through the Midwest are not likely to be strong enough to stop Lower 48 demand from sinking to its typical year-to-date low,” Genscape said. The firm’s supply and demand data showed total Lower 48 demand Monday at 73.9 Bcf/d, “then declining daily to a low of 56.7 Bcf/d by Saturday. Last year, demand hit its annual low on April 14, and in 2015 and 2017, demand bottomed out in May.”

In terms of heating demand, the firm said it expects Lower 48 heating degree days (HDD) to drop from 128.6 Monday to a low of 22.1 Friday.

Cooling degree days “are popping up in earnest in California, Deserts Southwest, East Texas, South Texas and -- by week’s end -- Midcontinent and Southeast/Mid-Atlantic,” according to Genscape.

Looking at EIA storage regions, Genscape said it expects the week’s demand declines to come largely from milder temperatures in the East and Midwest, with the Pacific, Mountain and South Central regions expected to remain flat week/week. Midwest HDDs totaling 31.1 Monday are forecast to fall to 7.1 by Friday, according to the firm.

Along the East Coast, a few points inched higher Monday amid lingering below-normal temperatures following cold over the weekend. Transco Zone 6 New York added 5 cents to $3.21, while Transco Zone 5 finished a penny higher at $3.15.

Radiant Solutions was calling for temperatures to remain about 5-7 degrees below normal Tuesday and Wednesday in major East Coast cities including Boston, New York, Philadelphia and Washington, DC.

A few New England points moderated Monday, including the volatile Algonquin Citygate, which shaved off 5 cents to average $8.42.

According to Genscape, Algonquin Gas Transmission (AGT) was expected to begin maintenance Tuesday restricting volumes between its Stony Point and Oxford compressor stations.

“This will affect 255 MMcf/d through the Southeast Compressor Station and will likely continue to put upward pressure on AGT basis and but receipts from Tennessee Gas Pipeline Mahwah and Millenium Ramapo interconnects in New York, and increase receipts on the northern end of the system,” Genscape said. “The simultaneous outage at the Burrillville Compressor Station had been supporting AGT prices last week, and paired with colder-than-average April demand will continue to provide volatility to the New England market.”

In the West, SoCal Citygate surged 99 cents to average $3.61 as import-constrained utility Southern California Gas Co. (SoCalGas) was forecasting higher demand over the next several days.

SoCalGas projections on Monday showed demand surpassing 2.5 Bcf/d Monday after totaling around 2.1 Bcf/d on Sunday. Over the next few days, demand was expected to surpass 2.4 Bcf/d, enough to slightly exceed projected receipts and require the utility to make shoulder season storage withdrawals.

Elsewhere in the region, SoCal Border Average jumped 20 cents to $2.31, while El Paso S. Mainline/N. Baja added 23 cents to $2.38. Further upstream in West Texas, prices fell. Waha gave up 10 cents to $1.98.

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