January natural gas futures were trading 5.9 cents higher at $4.386/MMBtu shortly before 9 a.m. ET Friday, with overnight forecasts mixed as the market awaits the upcoming release of government storage data.
Bespoke Weather Services said forecast changes overnight dropped a significant chunk of gas-weighted degree days (GWDD) from the outlook, though the firm highlighted a potential long-range pattern that would bring the return of colder conditions later this month.
“Overnight model guidance lost a significant number of GWDDs but also began to hint at the first signs of an upstream pattern change back colder around Dec. 22 that could begin to bring GWDDs back above seasonal averages by around Dec. 25,” Bespoke said. This could stoke “fears that cold returns into the end of the year even as warmth returns next Wednesday and should dominate for at least 10 days.
“...Production continues to sit off highs as burns have loosened slightly, though other demand has remained very tight with Canadian imports taking a dip today,” the forecaster said. “Balances are tight enough to keep a firm bid under prices even as we expect balances to loosen next week. Meanwhile, the market is clearly jumpy with storage the primary focus.”
Estimates for Friday’s Energy Information Administration (EIA) storage have clustered around a withdrawal in the low to mid-60 Bcf range for the week ended Nov. 30, which would widen the deficit to year-ago levels but keep the deficit to the five-year average relatively steady.
A Bloomberg poll of 14 market participants showed a withdrawal range of 51 Bcf to 77 Bcf, with a median draw of 63 Bcf. A Reuters survey of 19 participants had estimates ranging from withdrawals of 57 Bcf to 77 Bcf and a median drawdown of 64 Bcf. Kyle Cooper of IAF Advisors projected a pull of 62 Bcf. EBW Analytics Group predicted a 61 Bcf draw, as did Genscape Inc.
Last year, EIA recorded a 3 Bcf withdrawal for the period, and the five-year average is a withdrawal of 58 Bcf.
In the near term, demand is likely to retreat from recent strong levels as forecasts show conditions in the Lower 48 shifting progressively warmer, according to Genscape. The firm’s daily supply and demand balances for the Lower 48 as of Friday showed consumption holding strong at 95.8 Bcf/d Monday and Tuesday but dropping to 89.2 Bcf/d Wednesday before shedding an average of 0.38 Bcf/d over the following week.
Day/day shifts in the six- to 10-day forecast have removed about 0.3 Bcf/d of expected demand compared to Thursday’s outlook, while the changes in the 11-15 day outlook have cut about 1.6 Bcf/d from the latest demand outlook, Genscape told clients Friday.
With warmer-than-normal weather expected to move in next week and stick around for more than a week, cash prices could see sustained downward pressure, according to EBW Analytics Group CEO Andy Weissman. Cash prices could weaken further with the Christmas holiday.
“If this forecast validates, support at $4.24 is likely to be broken, pushing prices closer to $4.00,” Weissman said. “As of this morning, however, the weather pattern late in this period remains uncertain, with the American model calling for continued mild weather and the European calling for a return of the Alaska Ridge, bringing back cooler weather. The resolution of this debate will determine how low natural gas prices sink.”
January crude oil was trading 99 cents higher at $52.48/bbl shortly before 9 a.m. ET, while January RBOB gasoline was trading about 2.9 cents higher at $1.4622/gal.