December natural gas futures were surging 25.1 cents higher to $3.535/MMBtu shortly before 9 a.m. ET Monday as weekend weather guidance significantly strengthened the expected intensity of medium-range cold trends.
Bespoke Weather Services said the extent of the cold shift in the weekend guidance came as a surprise. The firm’s Monday morning forecast showed above-average gas-weighted degree days beginning Friday (Nov. 9) and continuing through Nov. 18, with heating demand expected to peak around Nov. 14.
“Our sentiment has ticked slightly bullish in that weekend weather models were some of the most dramatic in recent memory, with all guidance adding an incredible amount of heating demand against the odds,” Bespoke said. “Models do remain incredibly chaotic, and they will continue to bounce prices around significantly as attempting to determine what any individual run will show is near impossible.
“On net we do eventually see the pattern trending warmer through the second half of November, which does likely help prices set a high this week, and balances are much looser with power burns off significantly (though production is not yet back to highs),” the firm said. While potentially loose Energy Information Administration storage report could see prices reverse lower on any long-range warming trends, “cold is so impressive as to keep a continual bid under the front of the strip and bring about a major short-covering rally today that keeps us from seeing any top yet.”
The weekend swing colder came as weather models have been volatile in recent weeks, struggling to get a handle on the impact of stormy weather in the Western Pacific, noted EBW Analytics Group CEO Andy Weissman.
“Weather-driven demand has now nearly always been far stronger than normal for seven straight months,” Weissman said. “...After this weekend’s huge increase in demand, the margin of safety in a cold weather scenario is wearing thin, increasing the odds of a major further increase in pricing.”
Looking at the near-term, Western Canada is already starting to see colder-than-normal temperatures settle in, with chilly temperatures expected to descend later this week into the Upper Midwest and into major demand centers in the East, Genscape Inc. senior natural gas analyst Rick Margolin said.
“December prices are being buoyed by longer-range outlooks also showing colder December temperatures than previously expected,” Margolin said. “Western Canada will be the first to experience the cold. Daily high temperatures for Calgary this week are forecast to remain below freezing through Thursday, coming in about 10 degrees below normal for this time of year. Such temps should sustain Alberta demand above 6.1 Bcf/d.
“That mark was achieved at about this same time last November, although under notably colder temperatures (daytime highs in the teens),” Margolin said. “Cresting the 6.1 Bcf/d mark this year under warmer temps is a product of the ongoing structural demand growth trend seen in the province for the past five years from fuel switching in the power sector, oilsands development and population growth.”
December crude oil was up 19 cents to $63.33/bbl shortly before 9 a.m. ET, while December RBOB gasoline was near even at $1.7077/gal.