December natural gas futures rocketed higher early Wednesday and were up 44.9 cents to $4.550/MMBtu at 8:30 a.m. ET, with more forecast cold trends and ongoing storage fears keeping the market from establishing a top.
After a steady climb overnight, the front month burst higher just before 8 a.m. ET, pushing as high as $4.929 before retreating to around the $4.500-4.700 range.
“Natural gas is on fire this morning,” said EBW Analytics Group CEO Andy Weissman said, pointing to a “much colder” shift in both American and European guidance early Wednesday. “The long-expected warm-up near the end of Week 2 has disappeared almost entirely, replaced by just a brief two-day moderation.
“Just as significantly, the models show a strong dual blocking pattern is developing near the end of the 15-day window, with a strong Western Ridge and a second block over Greenland. If this pattern validates, it will allow frigid air from Hudson Bay to funnel down into the U.S., leading to very cold weather in early December.”
EBW’s three-week forecast has now added an “unprecedented” 200 Bcf in demand over the past 10 days, Weissman said.
“The question at this point is how much higher prices will rise,” he said. “With opportunities for switching from natural gas to coal largely exhausted at current prices, a rise to $5.00 no longer is out of the question.”
With early winter cold arriving against a backdrop of historically low storage inventories heading into the heating season, the market has found itself gripped by what Bespoke Weather Services described early Wednesday as “utter fear.”
“Models trended back in a significantly bullish way overnight after initially showing some preliminary warmer trends across the Pacific” Tuesday afternoon, the forecaster said. All models increased a long-range downstream negative North Atlantic Oscillation signal, which indicates “risks for significant cold to lock into the Midwest and East.
“Additionally, European guidance finally caught up to the colder signals shown by American guidance in the medium-range,” pointing to gas-weighted degree days “struggling to get much below average if at all and then rising again later Week 2 into early Week 3.”
Meanwhile, the latest production trends appear unlikely to discourage the bulls. A natural gas liquids (NGL) pipeline disruption impacting the Permian Basin and indications of the winter’s first round of freeze-offs have accompanied a drop in Lower 48 production, according to Genscape Inc. analyst Nicole McMurrer. Genscape’s daily pipe production estimates for Tuesday showed top-day volumes down more than 1.8 Bcf/d from the month-to-date average.
“Total Permian (Texas and New Mexico) gas volumes remain more than 0.9 Bcf/d below the month-to-date average with continued restrictions on a key NGL pipeline limiting gas takeaway,” McMurrer said, noting that El Paso Natural Gas points impacted by the disruption were again posting depressed volumes for Wednesday.
“Our Spring Rock production group also noted the magnitude, rapidity and geography of the Lower 48 production drops coincides with areas that experienced a rapid temperature drop, suggesting we may be seeing the first freeze-offs of the winter,” the analyst said. Several pipelines “from the Midcontinent and Texas to the Northeast” reported operational flow orders “and large negative nomination revisions in areas dealing with extreme temperature departures from normal. As a result, there may be roughly 1.2 Bcf/d of gas freeze-offs occurring.”
As of 8:30 a.m. ET, December crude oil futures were up 66 cents to $56.35/bbl, while December RBOB gasoline was trading 1.3 cents higher at $1.5558/gal.