- Colder-trending weather data sends Nymex natural gas futures soaring
- United States production hits 95.5 Bcf/d, but coming cold front seen lingering later in November
- Cash prices surge as demand set to increase
Natural gas futures surged Monday as all weather models trended colder for the coming weekend and next week. Even with production hitting another new high, a strong cash market helped send the November Nymex contract up 14.6 cents to $2.446/MMBtu. December climbed 9.6 cents to $2.555.
Spot gas posted dramatic gains across the board as a frigid cold shot that dove down into the Rockies and Plains was expected to spread into the southern and east-central United States, driving up demand as far as Texas. The NGI Spot Gas National Avg. jumped 37.5 cents to $2.290.
For a market hitting new production highs almost daily and storage inventories swelling above historical levels, the news of chillier weather was just what market bulls -- the few there are -- had hoped for. The change was stronger in the American ensemble weather data, which is now back to being the colder model when compared to the European.
The Global Forecast System (GFS) added another 10 heating degree days (HDD) on top of the 8-9 HDDs it gained over the weekend by seeing a weaker break between cold shots Nov. 5-8 and by favoring cold pushing strongly back across the Canadian border Nov. 9-11, according to NatGasWeather. However, the European model lost 5 HDDs overnight compared to Sunday afternoon's data.
“The European data isn't nearly as aggressive with cold into the United States after this coming weekend compared to the GFS and where much of the differences lie,” the forecaster said.
There are hints of warming showing up around Nov. 10, however, as models still weaken the blocking but also start to move the Alaska ridge slightly westward, which would allow moderation across key areas of the United States if that trend holds, according to Bespoke Weather Services. But the firm would need to see consistency and progression forward in the forecast to be convinced.
Bespoke’s view remains that moderation/warming will come, but such a transition appears to be slower in Monday’s guidance, “and we have added a decent chunk of demand since forecasts were issued back on Friday,” chief meteorologist Brian Lovern said.
The midday GFS run lost a little more demand for this week but added an even heftier amount for this weekend and next week by seeing a strong cold shot into the Northeast and then holding cold firmly across the northern part of the country with little opportunity for milder breaks until Nov. 11-12. “Overall, the GFS model is rather bullish the next 13 days, then less impressive after as cold hints at finally retreating,” NatGasWeather said.
Meanwhile, production reached 95.5 Bcf on Sunday and could be even higher pending revisions, according to Bespoke. The production story was one touted by bears throughout 2018, but a cold winter that began in earnest last October and continued through the early part of the spring left storage stocks at steep deficits. This year, however, the market is entering the winter season with inventories sitting at a comfortable surplus, and bearish sentiment is pervasive.
Natural gas net short positioning continued to grow last week for the fifth consecutive week, as shorts reached 198,000 contracts, the latest Commodities Futures Trading Commission (CFTC) data show.
When the massive short-covering rally began in the last week of August, speculators had built up net short positions of 211,000 contracts, only slightly beyond current levels, according to EBW Analytics Group. “As the natural gas market carries short positions into the withdrawal season, the risks of a large bullish weather shift brings the added potential for exacerbated price moves due to short-covering risks.”
For now, however, the CFTC data is indicative of the widespread bearish sentiment in natural gas, and absent strong weather-driven bullish shifts, a demonstrated willingness to short the market may help weigh on Nymex gas, EBW said.
With a series of cold fronts continuing to move through the United States this week, cash prices raced out of the gate Monday as traders eyed rising demand.
Genscape Inc. projected Lower 48 population-weighted HDDs to spike to around 140 by the end of this week (compared to a long-term climatological average of 80 HDDs). A localized peak slightly above 66 Bcf/d in total pipeline sample demand, as portrayed via net pipeline deliveries to demand point locations, is expected on Tuesday.
Over the weekend, portions of the Rockies and Upper Midwest saw below-average temperatures and snow as chilly air moved across the region. The current southward plunge in the jet stream is expected to persist across the Rockies and central United States for much of the week.
“By midweek, HDDs for the Rockies are expected to spike to 28 HDDs above (colder than) normal,” Genscape natural gas analyst Allison Hurley said. “Further south, East Texas HDDs could come in 17 HDDs above normal.”
Not surprisingly, Rockies cash markets put up some of the strongest increases, with the majority of pricing hubs soaring upward of 40 cents from Friday’s levels. With import limitations still in place, Northwest Sumas jumped a more substantial 69.5 cents to $3.935.
California prices also surged, although temperatures were expected to be much milder following extreme heat in the state last week. However, strong Santa Ana winds continued, and Gov. Gavin Newsom declared a statewide emergency on Sunday. Thousands have been ordered to evacuate, and local utilities have resorted to preemptive power shut-offs to mitigate fire risk. The strongest winds were expected on Tuesday.
In Texas, 20-cent-plus gains were the norm in most of the state. However, West Texas prices roared back from last week’s extreme lows, notching increases of around 80 cents or so. Waha cash jumped 83.0 cents to average 99.5 cents.
In the Midcontinent, Northern Natural Ventura shot up 51.0 cents to $2.640, while spot gas prices in the Midwest rose mostly 30-40 cents.
In the Northeast, Transco Zone 6 NY rose 39.5 cents to $1.955.