December natural gas futures were trading 12.2 cents higher at $4.645/MMBtu shortly before 9 a.m. ET Wednesday, with the market awaiting the Energy Information Administration’s (EIA) first reported storage withdrawal of the season.
Estimates for this week’s EIA report -- due out a day earlier than usual at noon ET because of Thanksgiving -- point to a triple-digit withdrawal for the week ended Nov. 16. A triple-digit pull would kick off the withdrawal season in style and significantly widen the already steep year-on-year and year-on-five-year inventory deficits that have made the markets jumpy.
A Reuters survey of traders and analysts predicted a 109 Bcf withdrawal for the week, with a range of minus 92 Bcf to minus 121 Bcf. A Bloomberg survey showed a median prediction for a 108 Bcf withdrawal, with a range of minus 99 Bcf to minus 120 Bcf. Kyle Cooper of IAF Advisors called for a 120 Bcf withdrawal, while Intercontinental Exchange EIA financial weekly index futures settled Monday at a withdrawal of 119 Bcf.
Last year, EIA recorded a 42 Bcf withdrawal for the period, and the five-year average is a withdrawal of 25 Bcf.
“It was colder than normal over almost the entire country” during this week’s report period, “especially so over Texas and the east-central U.S.,” NatGasWeather said. “Our algorithm expects a draw of 116-117 Bcf, but it’s nearly impossible to predict accurately” because of heating degree days that have been “exceptionally greater than normal for this early in the winter season.”
As for the overnight weather data, NatGasWeather said models maintained an overall bullish pattern for the next two weeks. The Global Forecast System and European models were a little less cold for the first week of December compared to Tuesday’s data, showing a more pronounced break between cold shots around Dec. 2, according to the forecaster.
Near-record cold moving into key demand markets for Thanksgiving could “potentially push natural gas prices back up despite the usual holiday decline in demand,” EBW Analytics Group CEO Andy Weissman said.
Weissman viewed the morning forecasts as trending slightly milder but with a “tiny” net impact on demand. “The more important development is that the European ensemble increasingly is signaling the potential for a severe cold outbreak in early December.”
As for Wednesday’s storage report, the data could have a greater impact than normal as the range of analyst predictions -- going from a withdrawal in the high 90s to above 120 Bcf -- is unusually wide, according to the analyst. If the withdrawal comes in “near the high end of this range and weather forecasts for early December continue to trend colder, gas prices could explode to new highs.”
Meanwhile, the recent spikes in natural gas prices have allowed coal-fired power generation to reclaim market share, increasing the ratio of coal burned versus gas to recent highs, according to Genscape Inc.
“Since mid-May, the ratio had tightened to record-low levels, averaging just 1.08 MMBtu of coal for every MMBtu of gas, and posting 27 days where more MMBtus of gas were consumed than coal for power generation,” Genscape senior natural gas analyst Rick Margolin said. “...That has all changed recently as the recent rally in gas prices has eroded the gas cost advantage.
“The coal-to-gas ratio on Oct. 16 was at just 1.05, but since then has averaged 1.24. During this time, the Henry Hub cash prices averaged $3.58, about 30 cents above mid-October spots. On Friday (Nov. 15) the cash price hit $4.62, its highest mark since mid-January. Just two days later the coal-to-gas ratio then spiked to 1.64, its largest point since last February.”
January crude oil futures were up $1.22 to $54.65/bbl shortly before 9 a.m. ET Wednesday, while December RBOB gasoline was trading about 2.8 cents higher at $1.5242/gal.