The sharp swings higher just keep coming for natural gas futures. With another solid shift to the colder side in the latest weather models, the November Nymex gas futures contract expired Tuesday some 15.1 cents higher at $2.597. December, which takes the prompt-month position on Wednesday, rose a more moderate 8.4 cents to $2.639.
Spot gas also continued to strengthen Tuesday, with the Rockies and California continuing to post substantial increases that put prices back above $3 at several key pricing hubs. The NGI Spot Gas National Avg. climbed 15.5 cents to $2.445.
With weather models already chillier to start the week, market observers warned of the likely volatility that would ensue as the November Nymex futures contract neared expiration. After surging nearly 15 cents on Monday, the second largest single-day increase for a prompt-month Nymex contract, the hefty gains in projected gas-weighted degree days (GWDD) from Tuesday’s weather models led to another sharp rally for futures right out of the gate.
The November contract was up more than a dime at 8:30 a.m. ET and reached an intraday high of $2.640 before going on to settle about 4 cents below that level.
Both the American and European data early Tuesday were 15-20 GWDDs colder than where they stood the previous 24 hours, according to Bespoke Weather Services. The American ensemble data remained much colder versus the European models by about 16-17 GWDD, but so far, both models keep moving in the same colder direction.
The midday data was relatively unchanged, with the Global Forecast System (GFS) only giving back one to two heating degree days (HDD), according to NatGasWeather. The afternoon European model then trended a little colder to add three to four HDDs versus Monday night’s run and eight HDDs versus its run in the previous 24 hours.
“The pattern is being driven almost totally by the Pacific side, as what blocking we see still wanes as we move forward,” Bespoke chief meteorologist Brian Lovern said. “We thought that would allow moderation, with the Pacific side being more variable in nature, but any fading or moving of the upper level ridging around Alaska keeps getting delayed deeper into November.”
The firm has lowered its confidence, but it respected the changes in the modeling in that “the market will stay on edge” until there are a couple sets of weather model runs in a row that do not move any colder.
NatGasWeather said the frigid pattern is expected to result in a couple smaller-than-normal storage builds, or potentially even the first withdrawal of the season for the storage report three or four out, preventing surpluses from increasing further. Through the summer, production dominated the market and helped flip a 700 Bcf-plus deficit to year-ago levels to a more than 500 Bcf surplus.
“We are now entering the big winter period where weather can often dictate natural gas market movements” and the risk for a cold November start “was respected by the market, even in a condition of healthy supply where U.S. Lower 48 production touched all-time highs during the weekend at 95.7 Bcf,” NatGasWeather said.
Bespoke said Tuesday’s preliminary data showed production declining by around 2 Bcf, although revisions were likely. “The drop does not yet appear to be freeze-off related, but that is still a concern for the rest of the week given the record-breaking cold coming down the Rockies.”
Meanwhile, record liquefied natural gas feed gas deliveries have also been supportive, with intake holding steady so far this week. Furthermore, the expiration of November contract options and speculator short-covering likely enhanced gains, according to EBW Analytics Group.
“With the December contract set to assume the front-month role” on Wednesday, “the onset of winter and notable weather forecast swings are likely to bring enhanced volatility to natural gas prices over the next two to three months,” the firm said.
A wave of Arctic air infiltrating the northern United States lifted cash prices across the Rockies, pushing one key pricing hub above $4.
Some areas of the Rockies are already seeing subzero temperatures before the ghosts and goblins parade down the streets this Halloween, and spot gas prices rose anywhere from around a nickel to almost 50 cents. Kern River next-day gas shot up 46.0 cents to $3.050.
“This intense winter blast will be with the Intermountain West and High Plains for a couple of days, with the coldest conditions lasting through Wednesday morning,” AccuWeather meteorologist Bill Deger said.
Some areas of the Rockies are expected to see temperatures drop around 45 degrees below normal, according to AccuWeather. Cheyenne, WY, was forecast to see a high of 8 degrees on Tuesday, whereas the norm is 54.
Although a modest rebound in temperatures is expected by the end of the week, the cold front this week “will be extreme for even mid-winter standards in Colorado and Wyoming,” AccuWeather meteorologist Jake Sojda said.
The strong downstream demand has been a boon for Permian Basin pricing, which only last week came under pressure from a return to constrained conditions in the region following the quick filling of the Gulf Coast Express gas pipeline. After falling back into the negatives, El Paso Permian spot gas averaged $1.660 after climbing 58.5 cents on the day.
Despite the hefty increases over the last two days, Permian gas is still priced at quite a discount to competing Midcontinent volumes. Regional prices are well above $2 despite notching gains of only a few cents at the majority of market hubs.
One exception was Enable East, which jumped 24.0 cents to $2.425 as Enable Midstream Partners on Tuesday began unplanned maintenance at the Chandler compressor station (CS) in Latimer County, OK. The work, expected to continue through Friday, will limit scheduled capacities through the Amber Junction (CS) further upstream in Grady County, OK, to 291 MMcf/d.
Flows through Amber have averaged 646 MMcf/d over the past 30 days, according to Genscape Inc. Flows towards Enable’s North and South Pooling Area in Arkansas and Louisiana will therefore be restricted by 355 MMcf/d.
Spot gas at the benchmark Henry Hub climbed 16.5 cents to $2.555, although mild weather in store for the eastern United States until the weekend sent prices lower throughout the region. Transco-Leidy Line next-day gas fell 12.0 cents to $1.755, and Algonquin Citygate dropped 10.0 cents to $1.935.