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November in Limbo as Traders Test Strength of Cold Snap; Spot Gas Strengthens

After trading several cents higher early in the day, November natural gas futures stopped short of another surge Tuesday as the front month settled a mere one-tenth of a cent lower at $3.266.

With the colder trends that showed up in weather models in recent days confirmed, technical resistance and profit-taking came into play to prevent another breakout in futures prices. Spot gas, meanwhile, continued to strengthen although gains were far more tempered than those seen on Monday. The NGI National Spot Gas Avg. nudged up 4.5 cents to $3.00.

On the futures front, the Nymex November gas futures contract opened Tuesday’s session less than 2 cents higher than Monday’s settle at $3.281. The prompt month went on to trade as high as $3.368 before tumbling as low as $3.237; a small bounce occurred before the close that left the prompt month essentially unchanged.

“Last week, I warned that the bears had no case unless they could crack $3.119-3.092-3.088,” ICAP Technical Analysis’ Brian LaRose said. But despite a surge to a fresh high on Monday, “market bulls can not claim victory just yet” either.

In order for the bulls to open the door for a run at $3.419-3.494, they must punch through $3.293-3.299. “Fail to do so immediately, and we could still be looking at a top. A dump beneath $3.166 would confirm a high is in place,” LaRose said.

To be sure, while November ended the day technically in the red, the remaining winter contracts ended on the positive side of the ledger. The Nymex December contract rose nine-tenths of a penny to $3.298, January climbed 2.8 cents to $3.361, February edged up 2.6 cents to $3.262 and March tacked on 2.2 cents to $3.061.

“No surprise with another 10-cent intraday move” in November futures, NatGasWeather said. While the latest weather data continues to add demand/heating degree days, prices have paused, “suggesting the new short-term trading range will be $3.19-3.34.”

The key question at this point relates to likely weather in Week 3 and beyond, according to EBW Analytics. Since Monday morning, the European Ensemble weather model increasingly has been calling for a return of the Alaskan Ridge near the start of Week 3. “If this forecast validates, it could bring much colder-than-normal weather to the eastern half of the country -- the exact opposite of last week's forecast,” EBW CEO Andy Weissman said.

Weather model uncertainty for Weeks 3 and 4 is high, and cyclone activity in the West Pacific, which is inherently difficult to predict, could still cause significant forecast changes, EBW said. “With major resistance levels already pierced, however, if the Week 3-4 forecast continues to trend colder, the November-March contracts could quickly jump much higher,” Weissman said.

Indeed, with storage inventories at their lowest levels in more than a decade, futures traders are justified in being somewhat jittery with cold weather hitting much of the country weeks ahead of the official winter season. “At the same time, spot market demand has been robust, with resilient cooling demand across the southern tier and salt storage operators injecting considerable supplies ahead of the winter heating season,” EBW said.

Despite the uncertainty over weather trends further out the forecast, Bespoke Weather Services remains confident, however, that milder temperatures will return before winter. “...this pattern is unsustainable into November, and we do not expect it to lock in as the dominant pattern for the start of winter,” Bespoke chief meteorologist Jacob Meisel said.

The cold snap can linger for at least the next couple of weeks, however, and pull gas-weighted degree days solidly above average, which is what appears likely to happen, Meisel said.

Meanwhile, there was another factor that was likely to impact the market in the short term. Hurricane Michael continues to track towards the U.S. Southeast and is expected to make landfall in the Florida Panhandle Wednesday as a Category 3 storm. While supply-side impacts are emerging, overall expectations are for less market disruptions than those of previous storms, although cooler temperatures could cut power demand in some parts of the Southeast.

Spot Gas Climbs Again; West Cools

Spot gas prices were mostly stronger Tuesday as the southern and eastern United States were expected to be dominated by warm conditions through midweek, while the West and Plains were forecast to remain chilly. Gains were far more muted than Monday’s action, however.

As for weather details, daytime highs through Wednesday were expected in the 80s to lower 90s across the southern United States and in the upper 60s to lower 80s over the Ohio Valley, Mid-Atlantic and portions of the Northeast, NatGasWeather said. Weather systems were expected to bring rain and snow to the interior West and Plains, with overnight lows dropping into the 20s to 40s for relatively strong early-season heating demand.

Cold air over the Plains was expected to release Thursday across the Midwest, then sweep over the Ohio Valley and Northeast Friday into next week; this is where colder trends have occurred in recent days as national demand is expected to increase to stronger than normal, the forecaster said.

Meanwhile, while Hurricane Michael has been grabbing most of the headlines, Tropical Storm Sergio, which had been a category 1 hurricane earlier Tuesday, was expected to accelerate toward the west coast of Mexico and the southwestern United States, producing another round of flooding rainfall late this week in the footsteps of Tropical Storm Rosa, which saturated Arizona last week.

Sergio's forward speed to the northwest ground to a halt Monday, and the storm has since turned to the northeast and back toward land. As Sergio tracks toward land, large swells that have remained out to sea during the storm’s existence thus far will propagate toward the Baja Peninsula by midweek, according to AccuWeather.

Southern and central California will likely be spared from Sergio’s rainfall as landfall is projected to occur over the central portion of the Baja Peninsula, well south of Tijuana, Mexico, Thursday night or Friday. By that time, Sergio should have lost wind intensity, becoming a tropical storm or depression, AccuWeather said. Still, heavy, flooding rainfall and gusty winds will accompany Sergio’s push onshore across western Mexico before the downpours take aim at a portion of the southwestern United States.

"Tucson, Arizona, and El Paso, Texas, may be in line for a thorough soaking," AccuWeather meteorologist Kristina Pydynowski said.

Despite the likely demand destruction caused by the incoming storm, markets across the West continued to strengthen. PG&E Citygate next-day gas rose 9.5 cents to $3.57, while El Paso S. Mainline/N. Baja jumped 28 cents to $2.70. El Paso non-Bondad in the Rockies was up nearly 20 cents to $2.37, while Transwestern San Juan was up 17.5 cents to $2.40.

In the Northeast, pricing points along Algonquin Gas Transmission posted significant increases, and the Northeast Regional Avg. picked up 14 cents to $3.41. Appalachia prices, meanwhile, were mixed as pricing hubs shifted around a nickel or so on the day.

Midcontinent and Midwest spot gas prices continued to churn out double-digit gains as temperatures in the region were heading south. AccuWeather showed daytime highs in Chicago reaching the mid-70s on Wednesday and then plunging to the low 50s by Thursday and the upper 40s by Friday.

Chicago Citygate next-day gas rose 11.5 cents to $3.27, and Joliet climbed 10.5 cents to $3.25.

On the pipeline front, Midcontinent Express Pipeline (Midcon Express) on Wednesday was scheduled to perform a one-day annual emergency shutdown (ESD) test of the Delhi Compressor Station. This will shut in Midcon Express’ interconnect with Enable Gas Transmission just downstream in Richland county, LA.

Gas flows during the previous 60 days have averaged 228 MMcf/d, according to Genscape. The ESD testing is expected to reduce traditional deliveries from Enable onto Midcon Express by 228 MMcf. Extended analysis has shown no correlation in gas flows at Midcon Express’ other interconnects to compensate for losses from previous impactful maintenance events. Therefore, overall flows on Midcon Express downstream of Richland, LA, should expect a similarly impactful reduction, the firm said.

“This could likely affect deliveries to the Transcontinental Gas Pipeline Co. (Transco) interconnect (Choctaw, OK) at the end of the Midcon Express line. Deliveries onto Transco have averaged 1,207 MMcf/d over the past 60 days,” Genscape natural gas analyst Dominic Eggerman said.

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