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Volatile Natural Gas Futures Rally as Upcoming Mild Break Seen Weaker; Northeast Cash Climbs

Colder weather trends over the weekend and midday helped rally a natural gas futures market attempting to find fair value after last week’s explosive volatility. In the spot market, more cold temperatures in the forecast accompanied big gains in the Northeast, while Northwest Sumas moderated further on signs of constraints easing in British Columbia (BC); the NGI Spot Gas National Avg. picked up 59.0 cents to $4.940/MMBtu.

The December Nymex futures contract settled 42.8 cents higher at $4.700 Monday after trading as high as $4.779 and as low as $4.427. Further along the strip, January added 42.1 cents to settle at $4.712, February climbed 42.4 cents to $4.572 and March settled at $4.295, up 43.0 cents.

After setting a high of $4.929 and a low of $3.882 last week, the market over the next few days is likely to continue engaging in the “messy” process of sorting out fair value within that roughly $1 range, according to Powerhouse Executive Vice President David Thompson.

“We’re going to have this sorting out between $4.929 and $3.882,” Thompson told NGI. “Does the market deserve to find a range in here, or is all of this ridiculous?...Right now I’m not so sure the move up today has to do with weather. I think it has a lot to do with people trying to figure out what fair value is.”

Carrying over themes from last week, heading into Monday’s session the market remained focused on the timing, intensity and duration of a warm-up expected during the upcoming Thanksgiving holiday, as well as forecast trends for the first half of December, according to EBW Analytics Group CEO Andy Weissman.

“Remarkably, even though the holiday is just a few days away, the models shifted again over the weekend,” which reduced the expected duration of the upcoming warm break to two to three days and a forecast of colder-than-normal conditions to return by early next week, Weissman said. “This shift is likely to push natural gas prices higher again this week. Gains could be limited, however, by the reduction in commercial and industrial demand over the holiday and profit-taking before Wednesday’s close.”

Monday’s rally got a boost from colder trends in the midday Global Forecast System (GFS) data, which showed a shorter and weaker mild break late this week and into the weekend, according to NatGasWeather. The GFS data was also more intense with a cold blast expected to impact much of the United States next week.

“A brief milder break is still expected across the west-central U.S. and Midwest late in the week, advancing into the East early this weekend, easing national demand to near or slightly lighter than normal, but only for a couple days,” NatGasweather said. “As expected, a weather system with rain and snow will gain strength across the west-central U.S. this weekend, while again tracking deep into the southern U.S. with below normal temperatures.

“This system continues to speed up and is part of the reason the coming milder break is shorter in duration. This also means this system will track into the eastern U.S. faster, thereby increasing demand back above normal faster and stronger by early next week.”

Meanwhile, this week’s Energy Information Administration (EIA) storage report -- scheduled for release at noon ET Wednesday because of the Thanksgiving holiday -- could produce the season’s first triple-digit withdrawal as it accounts for last week’s widespread wintry temperatures, estimates show.

The Desk’s Early View storage survey showed respondents on average anticipating a 106.1 Bcf withdrawal for this week’s report, with a median pull of 109 Bcf. Responses ranged from minus 78 Bcf to minus 119 Bcf. Intercontinental Exchange EIA financial weekly index futures settled Friday at a withdrawal of 118 Bcf.

Anything close to a triple-digit pull would be enough to significantly widen the storage deficits that have helped fuel the recent volatility in natural gas markets; last year EIA recorded a 42 Bcf withdrawal for the period, and the five-year average is a withdrawal of 25 Bcf.

As of the week ended Nov. 9, total Lower 48 working gas in underground storage stood at 3,247 Bcf, 528 Bcf (14.0%) below last year and 601 Bcf (15.6%) below the five-year average, according to EIA.

Northeast Gains As Cold, Wintry Mix Forecast

As benchmark Henry Hub rebounded 31.5 cents to average $4.585 Monday, spot prices across the country bounced back from losses posted late last week. With snowfall and below-normal temperatures in the forecast for the Northeast, a few volatile New England locations saw hefty gains; Algonquin Citygate jumped $5.105 to average $11.815.

A storm system was approaching Pennsylvania and New York Monday and was expected to bring a mix of rain and snow through Tuesday to the northern Mid-Atlantic and Northeast, according to the National Weather Service (NWS).

“Light to moderate snowfall accumulations are expected for Upstate New York into New England, with the highest totals (three-to-six inches) forecast from the Catskills into the Berkshires, Green Mountains into southern New Hampshire and coastal Maine,” NWS said. “All rain is expected from Boston to Philadelphia given warm temperatures in place.

“...A shot of colder air will follow behind the system’s cold front, but a second and stronger cold front will reach the region from the northwest on Wednesday, bringing accumulating snow to the upper Great Lakes and some of the coldest air of the season to the Northeast for Thanksgiving,” according to the forecaster. “Average high temperature departures across the lower Ohio Valley into the Great Lakes will range 10-20 degrees below normal on Wednesday with similar anomalies spreading to the northern Mid-Atlantic and Northeast.”

In the Rockies, Northwest Sumas continued to moderate Monday. After plummeting $48.870 on Friday, average prices there fell another $10.690 to $9.685.

Enbridge Inc. sent out a notice to shippers Saturday that Canada’s National Energy Board (NEB) has increased the maximum allowable operating pressure on the 36-inch diameter portion of its Westcoast Energy system to 85% from 80% of normal operating pressure.

The change should allow capacity at Westcoast’s Huntingdon Delivery Area to increase to roughly 1.0 Bcf/d from 0.9 Bcf/d by Thursday (Nov. 22), according to Enbridge. This comes after the pipeline had to be repaired following a rupture last month near Prince George, BC.

Enbridge said it expects to exceed its previously communicated target of restoring Huntingdon capacity to 1.2-1.3 Bcf/d by Nov. 30.

The company planned to file a completed engineering assessment of the 36-inch diameter segment from Station 9 to Huntingdon for NEB approval Monday. Once approved to return to normal operating pressure, the capacity at Huntingdon should increase to around 1.4 Bcf/d from 1.0 Bcf/d.

Daily capacity fluctuations are possible as work continues on increasing capacity and stabilizing the system, Enbridge said. Incremental T-South capacity could be offered on a day-by-day basis ranging from 10-100 MMcf/d, with availability communicated prior to the start of the next trading day, it said.

Northwest Sumas spot prices have experienced extreme volatility in the aftermath of the Oct. 9 rupture, which has disrupted southbound flows into the Pacific Northwest. Last week, prices at Northwest Sumas traded as high as $100 and averaged as much as $69.245 for Thursday’s trade date.

Elsewhere, a number of locations in the West saw gains Monday that outpaced the increase at Henry Hub. In the Rockies, Kern River surged $1.285 to $5.755; in California, PG&E Citygate added 83.5 cents to average $6.110, while SoCal Border Avg. jumped $1.685 to $5.585.

“Out West, the departure of upper level ridging and the approach of upper level troughing will bring the first in a series of cold fronts as the large-scale weather pattern undergoes a shift,” the NWS said Monday. “The first cold front should arrive into California late in the day on Wednesday, preceded by rain and higher elevation snow into the Sierra Nevada.

“The departure of stagnant high pressure and the onset of precipitation will bring welcome relief to poor air quality, which has been plaguing portions of the West for weeks, as well as to help get the ongoing Camp Fire in Northern California under control. The rain may be moderate at times, which could cause debris flows given fresh burn scars in portions of Northern California.”

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