November natural gas futures were up about 4.0 cents to $3.205/MMBtu shortly after 8 a.m. ET Friday as forecasters spotted colder temperatures reaching the Midwest and East around mid-October, but with risks of milder conditions developing later in the month.
Overnight guidance increased heating demand expectations from Oct. 12-18, showing a modest cold shot starting in the Midwest and then gradually progressing into the East, but one that could quickly break down by around Oct. 19-20, according to Bespoke Weather Services. The forecaster pointed to “clear signs that Week 3 should hold warmer than average weather.”
As of Friday morning, traders were left to “weigh loosening balances against the continued storage deficit,” Bespoke said. “Our sentiment sits at slightly bearish, not because we expect prices to collapse today...but because we see increasing risks for long-range forecasts to warm into next week that, when combined with recent loosening, should ease cash strength and pull the front of the strip lower.”
On Thursday, the Energy Information Administration (EIA) reported a 98 Bcf build into storage inventories for the week ending Sept. 28, beating some low-ball estimates by more than 20 Bcf but still coming in within the larger range of expectations. With the 98 Bcf build, storage inventories grew to 2,866 Bcf, 636 Bcf below year-ago levels and 607 Bcf below the five-year average.
“Compared to degree days and normal seasonality, the 98 Bcf injection is about 2.5 Bcf/d loose versus the five-year average,” Genscape Inc. analyst Margaret Jones said. “After last week’s unseasonably strong power burn, total power generation this week was down over 46 average GWh. Collectively, nuclear and renewable gen were essentially flat week/week (w/w) as increased wind generation made up for an approximately 1 average GWh w/w decline in nuclear generation.
“Coal was down around 11 average GWh w/w, and gas generation was down around 34 average GWh for an estimated 6.8 Bcf/d less gas burn w/w.”
The storage build was part of a “triple whammy” of bearish developments that helped stall the recent rally Thursday, according to EBW Analytics Group CEO Andy Weissman, who also pointed to the start-up of Atlantic Sunrise and forecasts hinting at milder long-range temperatures. The Federal Energy Regulatory Commission’s decision to authorize service on Atlantic Sunrise has “significant market implications,” suggesting an in-service authorization for Nexus Gas Transmission could arrive within the next few days, he said.
“Unusually heavy rains in the Southeast over the last few weeks...have made restoration efforts far more difficult than normal,” Weissman said. “Prior to yesterday's action, fears had been growing FERC might not approve startup until these restoration efforts were over, which is expected to take several more weeks. Yesterday's action puts this speculation to rest, significantly increasing expected supply this month and laying the groundwork for further increases in November.
“...To add to the bearish news, yesterday's far higher-than-expected injection suggests that production is at the high end of the range indicated by recent pipeline scrapes, which differ by as much as 3 Bcf/d depending upon the vendor,” he said. “If this validates, we would expect next week's injection to be well above 90 Bcf, followed by a 100 Bcf-plus injection two weeks from now. This could throw additional cold water on the recent bullish surge.”
Intercontinental Exchange EIA end of storage index futures traders raised their expectations for early November inventories Thursday, as the contract added 8 Bcf to settle at 3,268 Bcf.
Shortly before 8:30 a.m. ET Friday, November crude oil was trading 30 cents higher at around $74.63/bbl, while November RBOB gasoline was up fractionally at around $2.1014/gal.