- Nymex November gas futures contract expires flat after late buying spree
- Production sets fresh record, while weather models turn warmer through medium range
- Some market observers unsure about late November weather given volatility in models
- Spot gas prices soar in New England, other parts of the East as cold weather systems move across region
For the second trading day in a row, natural gas futures bounced off key technical support, limiting losses despite a new production record established over the past weekend and warmer weather through the medium range. The Nymex November gas futures contract ultimately expired Monday at $3.185, flat on the day, despite shedding as much as 8.5 cents during the session. December, which will take over the prompt-month position on Tuesday, fell 2.7 cents to $3.198.
Spot gas prices continued to retreat for much of the country amid mild fall weather hovering over most areas. Prices were higher, however, in the Rockies and in the Northeast and Appalachia, where the second in a series of pre-winter storms was moving up the East Coast. The NGI Spot Gas National Avg. rose 8.5 cents to $3.12.
On the futures front, the expiring November contract was firmly in negative territory for most of the day as production reportedly set yet another record this past weekend. Genscape Inc. said that its daily pipe production estimate showed Lower 48 output cresting the 86 Bcf/d mark this past weekend.
The gains come, though, as the relative cold across the eastern half of the country gets winter demand season off to an early start, Genscape said. The firm’s daily supply/demand model showed Lower 48 demand estimated at 63.4 Bcf/d for Monday and rising to a high of 67.3 Bcf/d by Friday.
Genscape’s meteorologists were forecasting Lower 48 population weighted heating degree days (HDD) to touch 90 HDDs by then, about 10 HDDs above normal. “Last year, the same week also saw what -- in an historical context -- was a rather early boost to demand levels. During the average of the previous five years same date, demand typically doesn’t crest the 67 Bcf/d level until the second week of November,” Genscape senior natural gas analyst Rick Margolin said.
Indeed, the near-term cold propped up spot prices in key demand regions, which may have lent a hand in the November futures contract bouncing off $3.10 support, according to Bespoke Weather Services. “This will provide support early in the week, especially as long-range models keep some modest cold risks. However, those long-range cold risks are expected to struggle to translate into the medium range through the week as models should increasingly favor more warmth into mid-November too,” Bespoke chief meteorologist Jacob Meisel said.
Combined with record production, this seems likely to skew price risk lower even as exports hit record highs and Canadian imports remain limited, he said. Meanwhile, low storage levels continue to battle it out with incredibly loose storage data, and “after expiry, we see weather as increasingly tipping the scales in a bearish direction, with at least $3.10 December likely,” Meisel said.
Still, after roughly two weeks of shifting weather models that hardly ever agreed, EBW Analytics said that while both American and European models predict a warm-up in early November, they have differed sharply on start date, duration and intensity. Further, modeling runs have shown even greater uncertainty with respect to weather in Days 16-21.
“As of last Friday, the American and European models flat out contradicted one another, with one predicting warmer and the other colder weather. As of Sunday night, both models indicated substantial loss of demand in Days 1-10 and gain back nearly as much in days 11-15,” EBW CEO Andy Weissman said.
The most significant issue, though, is potential temperature anomalies in Days 16-21, according to EBW. “We believe that it is slightly more likely than not that warmer air will return, which could send natural gas prices lower once mid-November approaches. But uncertainty is high,” Weissman said.
Meanwhile, the looser storage data that has been reflected in recent Energy Information Administration (EIA) inventory reports has not completely erased all concerns about supply heading into winter.
NatGasWeather said it expected storage deficits to increase further off this coming Thursday’s EIA report due to cool weather in the northern and eastern United States last week. With the following two reports likely to come in a little over the five-year average, deficits will likely improve, “although likely only slightly.”
Cold Weather Boosts Northeast, Appalachia Spot Gas
Spot gas prices were mostly lower Monday as most natural gas demand continues to be limited to eastern markets. Forecasts showed cool conditions lingering across the Northeast into Tuesday as a weather system with showers sweeps through the region, capping high temperatures in the 30s to near 50, according to NatGasWeather.
A second system was tracking through the Northwest, and after it sweeps through the Rockies, it was expected to push into the Plains, South and east-central United States beginning Wednesday and continuing through Friday, with increasing showers and thunderstorms. “It’s this system that will draw cool Canadian air across the Midwest and Northeast as lows behind the front drop into the upper 20s and 30s,” NatGasWeather said.
Most markets in the western half of the country notched losses of less than a dime and often less than a nickel. Benchmark Henry Hub fell 3 cents to $3.17, while Midwest markets posted the most significant declines. Chicago Citygate next-day gas tumbled 12 cents to $3.165.
And while the continued cold boosted spot gas prices across the Northeast, ongoing constraints in New England provided additional support to prices there. Algonquin Citygate jumped 34.5 cents to $3.51, while PNGTS shot up $1.48 to $6.235.
Over in the Rockies, next-day gas at Kingsgate was up 14.5 cents to $3.10, while Northwest Sumas extended its reduced Canadian import-led gains another $4-plus to $14.12. That’s about $1.40 more than where Sumas November prices stood as of Friday, according to NGI’s Forward Look. Sumas November sat Friday at $12.71, while December was at $8.836 and the full winter strip (November-March) was at $7.435.
On the pipeline front, starting Monday (Oct. 29) and continuing through Wednesday (Oct. 31), Creole Trail Pipeline was scheduled for maintenance that will reduce its capacity to a maximum of 1.2 Bcf/d. Recent scheduled receipts onto the Creole Trail system have averaged 1.32 Bcf/d during the last seven days, with a maximum single day receipt of 1.39 Bcf, according to Genscape.
Thus, the maximum expected impact for this event is 190 MMcf/d in receipts. Evening cycle nominations for Monday’s gas day were scheduled at 1.16 Bcf/d, Genscape said.
Additionally, this maintenance will also overlap with a single day planned Texas Eastern Transmission (Tetco) meter station outage planned for Oct. 30 at its “CHENIERE LNG” location (meter 75866). This meter will be unavailable to flow gas during the outage. Receipts onto Creole Trail from Tetco have averaged 507 MMcf/d during the last week, with 414 MMcf/d scheduled for Monday’s gas day, Genscape said.