After selling off throughout last week, natural gas futures bounced back Monday as weather models advertised colder temperatures arriving in late October. Although uncertainty remained over how long the chilly temperatures will stick around, the November Nymex gas futures contract jumped 6.6 cents to settle at $2.280/MMBtu. December climbed 4.1 cents to $2.498.
Meanwhile, coming off widespread discounts prior to the weekend, spot prices rallied from coast to coast Monday amid forecasts pointing to cooler temperatures in store for the Great Lakes and Northeast later this week; the NGI Spot Gas National Avg. surged 27.0 cents to $1.86).
Guidance from both the American and European models reflected a colder pattern in the 11- to 15-day period, according to Bespoke Weather Services said Monday.
“This occurs as models appear to be bringing a wave of tropical forcing out toward the central Pacific, allowing a warmer ridge to develop in the West, sending a colder trough into the eastern half of the nation,” Bespoke chief meteorologist Brian Lovern said. “The bulk of the forcing hangs back over in the Indian Ocean, however, and without blocking in place, it is possible that this colder push is simply another transient one.”
Even with the colder trends over the weekend, gas-weighted degree day totals over the next 15 days are still on track to fall below normal, the forecaster said.
“We respect the model output but want to see more in order to be convinced that this is a fundamental shift in base state toward higher than normal demand, as opposed to just another window of variability,” Lovern said.
Looking at the latest supply picture, Lower 48 dry gas production averaged 92.1 Bcf/d over the weekend, according to Genscape Inc.’s estimates.
“This lifts the month-to-date average to 91.73 Bcf/d, about 1.1 Bcf/d below our forecast,” Genscape senior natural gas analyst Rick Margolin said. “Since the month opened, the bulk of the production growth continues to come from the Permian Basin, the rest of Texas, Ohio and southwest Pennsylvania.
“Collectively, these and smaller growth rates from other areas across the country have been more than enough to offset nearly 0.37 Bcf/d of declines out of Northeast Pennsylvania.”
According to EBW Analytics Group, the recent surge in production, due primarily to start-up of the Gulf Coast Express pipeline in the Permian, is creating a massive year/year storage surplus that could potentially cause prices to collapse, especially if this winter is mild and LNG exports disappoint.
“At least so far, though, both the November and January contracts have held support at major support levels -- $2.18 for November and $2.51 for January -- and space heating demand is starting to ramp up. It may be too early, therefore, for the natural gas market to move to lower levels, even if a debacle is waiting in the wings for next year,” the firm said.
Bears might have a tough time pushing prices another leg lower, as recent Commodity Futures Trading Commission data indicates a “rapid rebuilding” of net short positioning among speculators, leaving the market in oversold territory, according to EBW.
More than half of the shorts reduced during the early September short squeeze have now been rebuilt, the firm said. This increases the risk of “another short squeeze later this fall should a bullish catalyst, such as a cold weather shift, spark a large liquidation of shorts.
“It is possible that as winter nears, increasing weather risks will lead speculators to narrow short exposures, which may prop up natural gas futures in the medium term,” EBW said. “For now, however, we expect bearish market sentiment to continue until weather forecasts shift more decisively toward a colder outcome.”
In terms of the short exposure in the market, analysts at Enverus similarly observed that “should the market find support, it may create the need for the shorts to cover a rally and could take prices to $2.36, up to $2.40.”
Turning to the spot market, a strong cool shot is forecast to track out of the Rockies and Plains into the Great Lakes and Northeast midweek, sending overnight temperatures into the 20s to 40s for stronger demand compared to last week, according to NatGasWeather.
“It would be more impressive if not for the southern U.S. being mostly comfortable with highs of upper 60s to 80s” aside from a few areas expected to see temperatures climb into the 90s, the forecaster said.
While prices in the Northeast were hardly bullish -- most locations failed to crest the $2 mark -- regional hubs gained sharply Monday. Transco Zone 6 NY jumped 50.0 cents to $1.610, while further upstream in Appalachia Texas Eastern M-3 Delivery climbed 46.0 cents to $1.520.
As part of its ongoing Pipeline Integrity Project, Texas Eastern Transmission will conduct cleaner and in-line inspection tool runs between its Summerfield and Berne compressors in Ohio on Tuesday and Thursday. As a result, capacity through Summerfield will be reduced to around 340 MMcf/d on both days, cutting 207 MMcf/d compared to the previous 30-day average and 339 MMcf/d compared to the 30-day max, according to Genscape.
“Depending on the results of the inspections, the worst case scenario is that Summerfield flows will be reduced to zero,” Genscape analyst Josh Garcia said. “This event creates bullish pressure for Lebanon prices as its supply from M2 will be restricted.”
From Tuesday to Oct. 20, Enable Gas Transmission will be conducting a planned maintenance event at the Allen Compressor Station in Pontotoc County, OK, during which Enable will schedule approximately 305 MMcf/d through the station.
Since Sept. 1, flows through Allen have averaged 524 MMcf/d, indicating that 221 MMcf/d of gas will be restricted on Enable’s West 2 Pooling Area, according to Genscape.
“The Midcontinent is forecast to experience severely colder-than-average temperatures early this week,” Genscape analyst Dominic Eggerman said. “However the temperature will recover to seasonal norms by midweek.”
Meanwhile, some of the largest gains Monday occurred in California and the Desert Southwest, where NatGasWeather was calling for warm temperatures over the next several days, including highs in the 70s to 90s.
Southern California Gas was calling for demand on its system to jump about 300,000 Dth/d with the start of the work week, to about 2.23 million Dth Monday versus around 1.95 million Dth on Sunday.
Farther upstream, West Texas prices surged. Waha rallied 77.0 cents to $1.175.