Natural gas futures rallied Friday to close out a wild week, with forecasters pointing to long-range cold risks that served to exacerbate storage fears. In the spot market, a number of Northeast points gained on a wintry forecast as most regions sold off heading into the weekend; the NGI Spot Gas National Avg. fell 67.0 to $4.350/MMBtu.
The December Nymex futures contract rallied 23.4 cents to settle at $4.272 Friday after trading as high as $4.372 and as low as $3.907. Further along the winter strip, January climbed 24.8 cents to settle at $4.291, February rallied 25.1 cents to $4.148 and March settled at $3.865, up 26.9 cents.
Futures closed out Friday’s session on a high note for the bulls to cap off one of the most volatile weeks in years for the commodity. Prompt month annualized 20-day historical volatility reached 100.5% on Thursday, the first time it exceeded triple digits since the polar vortex of 2014, an NGI analysis shows.
“Things have been moving so quickly, even intraday technical indicators are having a hard time keeping up,” NGI’s Patrick Rau, director of Strategy and Research, said Friday. “One trader I spoke to earlier this week said it’s just gut feel at this point.
“Volatility like this causes more than just energy traders to come out of the woodwork. I spoke to one major investment bank whose inflation forecasting team was caught completely off guard, since price volatility has been relatively tame for so long. There are lots of questions abounding among generalists and economists about just how sustainable the rally is, and whether this is a true shift in the fundamentals.
“Based on the futures strip, they needn’t worry. The gains of the last few days have been completely contained within the 2018-2019 winter months.”
Bespoke Weather Services attributed some of the gains Friday to bullish negative North Atlantic Oscillation blocking risks in the long-range guidance.
“There were a few periods of more significant selling off quite warm American model guidance before colder European guidance helped prices spike into and after the settle,” Bespoke said. “If there is one high confidence statement at this stage it is that a significant gap can be expected Sunday, either one way or the other.”
As of Friday the firm was favoring a slight gap higher based on cold risks in the European model that could potentially drive prices back up to $4.50 if sustained over the weekend.
Meanwhile, on Thursday the Energy Information Administration (EIA) reported a somewhat larger than expected 39 Bcf injection into gas stocks for the week ended Nov. 9, compared with a 13 Bcf withdrawal recorded a year ago and a five-year average 19 Bcf injection. Total Lower 48 working gas in underground storage stood at 3,247 Bcf as of Nov. 9, 528 Bcf (14.0%) below last year and 601 Bcf (15.6%) below the five-year average.
“Compared to degree days and normal seasonality, the 39 Bcf injection is about 4.1 Bcf/d loose versus the five-year average,” Genscape Inc. analyst Margaret Jones said. “...While the year/year deficit is still more than 528 Bcf, it has narrowed to its closest point since February.”
Analysts with Tudor, Pickering, Holt & Co. (TPH) viewed the market as about 2.5 Bcf/d oversupplied on a weather-adjusted basis for the latest EIA report week.
“U.S. dry natural gas production fell 0.5 Bcf/d week/week to 86.9 Bcf/d while the Mexican export slide continues, now approaching 2017 levels,” the TPH team said. Liquefied natural gas (LNG) exports climbed about 0.6 Bcf/d week/week with feedgas increasing to Train 5 at Cheniere Energy Inc.’s Sabine Pass terminal in Louisiana.”
Cheniere’s Corpus Christi Train 1 reached first LNG last week, so TPH’s team is looking for LNG exports “to continue marching toward the 5.0 Bcf/d level over the short-term.”
Last week, analysts with Morgan Stanley also updated their outlook for end-March inventories based on recent forecast trends to around 1.36 Tcf. Weather fluctuations within one standard deviation above or below 30-year normal gas-weighted heating degree day totals could see end-March inventories as low as 885 Bcf or as high as 2 Tcf, according to the analysts.
The Morgan Stanley team increased its 1Q2019 price forecast to $3.60 from $3.15, “implying a modest downside to strip prices...However, the long-term outlook for gas remains challenged. As a result, our full-year 2019 forecast only moves up from $2.90 to $3.00,” and beyond 2020 the forecast is unchanged.
Physical Prices Pull Back with Henry
Physical prices for weekend and Monday delivery generally moderated as benchmark Henry Hub gave up 34.5 cents to average $4.270, though the prospect of more wintry weather over the weekend helped lift prices in the Northeast.
Snow from a nor’easter that was making its way north into the Canadian maritimes Friday was expected to end by early Saturday, according to the National Weather Service (NWS). But another front was expected to push across the upper and lower Great Lakes Friday and into Saturday.
“This will bring additional snowfall to the Great Lakes along with the New England interior -- and will continue into Sunday,” NWS said.
Algonquin Citygate jumped $1.155 to $6.710, while further south Transco Zone 6 NY climbed 18.5 cents to $4.515.
“An Arctic high will slide into the northern tier states through the short-term period,” NWS said Friday. “A cold front will make its way from the central Plains to the middle Mississippi Valley -- ending up in the Mid-Atlantic by Sunday evening. With these ingredients along with forcing an upper level disturbance, a swath of snow from northeast South Dakota to western Michigan is expected. The heaviest snowfall is expected in southern Minnesota, northeast Iowa and southern Wisconsin. Most of this activity will occur on Saturday -- ending by Saturday evening.”
In the Midwest and Midcontinent, Chicago Citygate dropped 23.0 cents to average $4.240, while Northern Natural Demarcation eased 17.5 cents to $4.215.
In West Texas, a number of locations dropped $1 or more, retreating to levels observed prior to a natural gas liquids (NGL) pipeline outage that disrupted Permian Basin production and caused prices in the region to spike last Monday. Last week El Paso Natural Gas notified shippers that it was lifting a strained operating condition for several locations that had underperformed following the NGL pipeline disruption.
Deals for weekend and Monday delivery at Waha were marked down $1.185 on average to $1.900. Earlier last week, Waha had averaged as high as $3.850 as the reported dip in Permian Basin output appeared to temporarily ease the wide negative basis differentials that have dogged the takeaway-constrained region.
Further West, the volatile SoCal Citygate tumbled $7.775 to average $10.840 Friday after spiking more than $10 a day earlier amid reports of planned maintenance expected to further restrict pipeline flows on the Southern California Gas (SoCalGas) system.
On Friday, SoCalGas was forecasting weighted average temperatures in the low 60s on its system over the weekend, with demand expected to total around 2.2-2.3 Bcf/d. With the import-constrained utility expecting system receipts to be capped at around 1.9 Bcf/d, the utility was projecting net storage withdrawals of about 375,000-475,000 Dth/d over the weekend.