November natural gas futures were trading 4.7 cents lower at $3.155/MMBtu shortly before 9 a.m. ET Friday, with the market processing the implications of loose government storage data as forecasters pointed to milder long-range temperature risks.
Bespoke Weather Services increased its total gas-weighted degree day expectations overnight for the next two weeks, factoring in less intense warmth in the long-range and a stretch of above average demand beginning next Friday (Nov. 2) through Nov. 5.
“However, climate guidance continues to show that the middle of November will have sizable warm risks across the East, something we agree with as well,” Bespoke said. “European guidance similarly shows any cold shot being fleeting in the medium-range, as though it may briefly boost heating demand it is unlikely to stick around, and the upstream tropical forcing signal favors further warming to the forecast.”
In addition to the medium-range cold potential, Bespoke also pointed to “evidence of balance tightening” weighed against Thursday’s “incredibly loose” Energy Information Administration (EIA) storage report.
“A small cash bounce is possible with cash trading so far above prompt month prices yesterday, but any morning bounce appears likely to fail with these more bearish forecasts and easing storage concerns,” the firm said. Despite tightening from nuclear outages, record liquefied natural gas exports and low Canadian imports, with record-level production and “forecasts expected to only trend in a more bearish direction through the weekend,” the $3.10 area could be tested Friday and is “quite likely to break on warmth next week.”
The EIA reported a 58 Bcf injection into storage inventories for the week ending Oct. 19, although the implied flow was an even greater 63 Bcf build because of a reclassification of 5 Bcf that decreased working gas in South Central non-salt gas stocks. Working gas in storage as of Oct. 19 was 3,095 Bcf, 606 Bcf less than last year at this time and 624 Bcf below the five-year average of 3,719 Bcf.
While the inventory deficit to the five-year minimum increased with this week’s EIA report, “weather-adjusted, the market was about 3.0 Bcf/d oversupplied,” according to analysts with Tudor, Pickering, Holt & Co. (TPH). “U.S. dry gas production continues to ramp up about 0.85 Bcf/d week/week (w/w) to 86.5 Bcf/d as the Northeast has increased 3.1 Bcf/d since the end of June.
“Short-term, cooler-than-normal temperatures continue to prevail, but forecasters in both the U.S. and Australia see a roughly 70% chance of El Nino forming by year end,” TPH analysts said. “In terms of longer term gas growth potential, EQT Corp.’s new mid-single digits growth guidance is constructive to the health of the market but is less relevant for the 2018/19 withdrawal season.”
Genscape Inc. analyst Eric Fell expressed skepticism over this week’s EIA data, pointing to the large nonflow related adjustment and the extent to which the 63 Bcf implied flow missed to the high side of most estimates.
“Compared to degree days and normal seasonality, the 63 Bcf injection is approximately 6.6 Bcf/d loose versus the five-year average, as degree day totals increased by 30 w/w but the storage injection only fell by 18 Bcf versus last week’s reported injection,” Fell said. “Relative to degree days and normal seasonality, this is the loosest weekly storage number of the last five years, and looser than all but a handful of weekly stats going all the way back to 2005.
“Added looseness in this week’s stat is being driven by an unusually large w/w decline in power generation (driven by a large w/w decline in cooling degree days), and the fact that this was the first big cold shot of the season (residential/commercial demand never performs as well as raw weather models would imply in the first cold event).”
December crude oil was down 60 cents to $66.73/bbl shortly before 9 a.m. ET. November RBOB gasoline was trading about 1.8 cents lower at $1.7952/gal.