- January natural gas continues wild intraday swings before settling more than nickel higher
- Cold risks expected to gradually increase through January before peaking in February
- Energy Information Administration set to release storage report on Friday due to Christmas holiday; deficits expected to improve next couple of weeks
- West spot gas prices surge; most other markets continue to drop in light holiday week
It was a bumpy road for January natural gas on Wednesday as thin trading after the Christmas holiday made for a volatile session before the prompt month eventually settled higher day/day. The Nymex January gas futures contract rose 7.6 cents to $3.543. Both the February and March contracts were up less than a nickel.
Spot gas prices, which traded in the red on Friday for delivery over the weekend and Christmas holiday, continued to post substantial decreases as unseasonably mild weather was in store for the next several days. A strong winter storm out West, however, lifted markets there. The NGI Spot Gas National Avg. ultimately plunged 20 cents to $3.085.
On the futures front, the Nymex January contract was poised to head deep into negative territory at the start of Wednesday’s session as the prompt month was already about a dime lower before 9 a.m. ET. Prices went on to slide another nickel before rebounding back to near even at midday and then moving into the black.
While weather has dominated the direction of gas prices in recent weeks, Wednesday’s erratic shifts were more likely due to the approaching expiration of the January contract on Thursday, according to NatGasWeather. The overnight weather data was mixed between milder and colder trends, where the Global Forecasting System was still quite cold most days Jan. 1-9 and the European model wasn't as impressive to lose some demand over the same period, the firm said.
The midday weather data continued to show decent cold shots across the Midwest and East Jan. 1-3 and Jan. 6-9, but still with milder breaks around Dec. 31-Jan. 1 and Jan. 4-5. “It's certainly a colder pattern, but would be more impressive if cold was sustained without milder breaks. Any colder trends, and it would look increasingly bullish,” NatGasWeather said.
While near-term forecasts aren’t likely to add any significant cold risks, Bespoke Weather Services said it would look for cold risks to rather dramatically intensify through the middle third of January.
“Weather model guidance should pick up on this slowly by the end of this week and in a more pronounced way next week,” Bespoke chief meteorologist Jacob Meisel said.
The firm continued to favor an overall forecast that showed cold risks increasing through the month of January and peaking in February with the moderate El Nino and potential stratospheric warming impacts. “The result could be very significant cold by the month of February with some cold lingering into March, though warmth can win at times into mid-January,” Meisel said.
The mild weather in place since mid-December and expectations for it to continue into January have some market observers expecting currently anemic storage inventories to vastly improve in the coming weeks. “Very small storage drawdowns” were expected to be announced each of the next two weeks that would result in aggregate storage levels moving much closer to the five-year range, according to Bespoke.
An early view of market expectations clustered around a withdrawal in the 47 Bcf to 60 Bcf range for this week’s Energy Information Administration storage report, which is scheduled to be released on Friday due to the Christmas holiday. The withdrawal estimates are much lighter than the five-year average draw of 121 Bcf and would improve deficits to near 650 Bcf from 720 Bcf, NatGasWeather said.
As of Dec.14, inventories stood at 2,773 Bcf, 697 Bcf below last year and 720 Bcf below the five-year average.
Still, even after the next few weeks, storage levels were expected to remain below the five-year range, according to Bespoke. Although the situation is far less dire than it was a few weeks ago, “storage levels are low enough that with enough significant cold, gas prices are still able to rally.
“Until we have a clear walk-out path without storage or deliverability issues, prices will remain quite sensitive to weather and low storage levels will continue to add some support,” Meisel said.
But some market observers have said growing production should also alleviate some storage concerns as several pipeline maintenance events that have stalled growth in recent weeks are coming to an end. As of Dec. 21, Lower 48 production had rebounded above the 86 Bcf/d level as a smattering of flow-restrictive maintenance events concluded, according to Genscape Inc. Month-to-date production was averaging just a tick shy of 86 Bcf/d, closing the deficit to the firm’s forecast at the start of the month to just 356 MMcf/d.
Meanwhile, the impact of lower crude oil prices -- which remained below $50/bbl even after rallying Wednesday -- was not expected to significantly dampen gas production growth despite an expected pullback in drilling activity by several producers, including Parsley Energy Inc. and Diamondback Energy Inc., in 2019. Genscape’s most recent production forecast update on Dec. 24 reflected the Cal. 2019 strip for West Texas Intermediate crude oil at $47.08/bbl, yielding a crude production forecast of 11.83 million b/d for 2019.
And while lower oil output reduces gas production due to lower associated gas volumes from oil production, some of those declines are being cancelled out by a stronger outright gas price, according to the data firm. The Nymex Cal. 2019 gas price had climbed to $3.12 heading into Wednesday’s trading, bringing the firm’s gas production forecast for 2019 down to just under 89.6 Bcf/d.
Spot Gas Mostly Lower in Light Holiday Week
Spot gas markets out West were the lonesome cowboys in a landscape of weak post-holiday markets as sharp gains of more than a quarter were seen across California, Arizona/Nevada and the Rockies. The gains came as a strong weather system that dropped snow in southern California on Christmas Day was expected to wreak havoc as it moved through Colorado, Minnesota and northern Michigan during the next few days.
While the storm was forecast to bring drenching rain and localized flooding in a large swath of the country’s midsection, the storm's cold side farther to the northwest has the potential to bring more than a foot of snow, according to AccuWeather. Rain and snow already began to break out across the central and southern Plains on Wednesday and was expected to ramp up overnight and continue in some areas into Friday.
Areas from west-central Nebraska to south-central and northeastern South Dakota, southeastern North Dakota and central Minnesota were expected to receive a general 12-18 inches of snow, and 24 inches in localized areas, the forecaster said.
Temperatures were forecast to plunge as the storm progresses, with actual temperatures forecast to fall into the 20s, teens and single digits in some areas and real-feel temperatures expected to plunge to life-threatening levels below zero in many cases, according to AccuWeather.
With the storm already moving out of California, spot gas prices there rose no more than a quarter. Malin was up 24 cents to $3.875. In the Rockies, however, Opal jumped a region-leading 58.5 cents to hit $4.175.
But while the weather system out West was boosting demand in that region, a consequence of the storm will be to pump a warm ridge of high pressure across the eastern United States the next several days, according to NatGasWeather. With temperatures of 20-25 degrees above normal expected to extend from New England to the Gulf Coast, national demand will be lighter than normal, the firm said.
“The current mild spell will finally break this weekend as a glancing shot of subfreezing Canadian air sweeps across the northeastern U.S., while milder systems impact the western and south-central U.S,” NatGasWeather said.
With the unseasonably mild weather on tap for the Northeast, spot gas prices there plunged. New England pricing hubs shed more than $1, while Transco Zone 6 NY dropped 24.5 cents to $3.24.
Points across Appalachia slid more than 15 cents at most pricing hubs, while Tennessee Zn 4 313 Pool tumbled more than 40 cents to $2.97.
Losses of 30-40 cents were common across most of the rest of the country, while some points in East Texas fell off considerably more as industrial demand remains light during the holiday week. Houston Ship Channel spot gas plunged 65 cents to $2.85.