A sustained drop in natural gas production and relatively stable weather outlooks were enough to propel Nymex futures higher on Wednesday despite expectations for upcoming government storage data to reflect a much larger-than-normal injection.
The December Nymex contract marked a third consecutive day of gains, edging up 5.2 cents to settle at $2.691/MMBtu. January climbed 5.7 cents to $2.781.
Spot gas prices also strengthened as frigid air has become anchored across the western and central United States, with forecasts showing the cold shot moving eastward beginning Thursday. Gains continued across the Rockies and California, but Texas led the way and boosted the NGI Spot Gas National Avg. by 7.5 cents to $2.520.
While the current cold snap has been supportive for both futures and cash markets in recent days, the longevity of the Arctic air remains unclear and poses downward risk to prices if the second half of November trends warmer. Both the American and European weather models maintain the cold forecast for the first half of November, with the former coming in some 15 gas-weighted degree days (GWDD) colder than the latter.
“Both models again hint at changes that could bring about a milder pattern around the middle of the month, but as we have been pointing out, this keeps getting delayed,” Bespoke Weather Services chief meteorologist Brian Lovern said. “While we believe that evolution ultimately does work out, confidence remains low until we see this progress forward in the forecast.”
As long as a strong upper level ridge anomaly continues up into Alaska, the bias of the pattern remains to the colder side, focused in the middle of the nation, according to Bespoke. However, there is “definitely enough cold” that continues to drop in to keep national demand above normal.
Indeed, the midday Global Forecast System data was colder trending for mid next week, although not quite as cold Nov. 12-14. Nevertheless, it still teased frigid cold would be right at the United States/Canada border and could push back into the United States at any time, according to NatGasWeather.
EBW Analytics Group said that if current weather guidance is confirmed, price resistance at $2.71 could hold, setting the stage for prices to retreat. However, speculator short-covering may take multiple days to play out, adding a latent bullish factor that could carry prices even higher.
The most recent Commodities Futures Trading Commission data (as of Oct. 22) showed a continued build-up in net short positioning to 198,000 contracts. “This level of net shorts remains a stone’s throw from the 211,000 net short positions as of Aug. 27, before the early September short-covering rally carried front-month gas as high as $2.70,” EBW said.
Furthermore, liquefied natural gas (LNG) feed gas deliveries have also surged in recent weeks, setting new highs in the last few days and providing additional support for prices, according to the firm. Last Saturday, more than 7.5 Bcf/d was cleared, an amount equivalent to 75% of all natural gas produced in the Bakken and Eagle Ford shales combined.
Increasing intake from Freeport LNG helped underpin the new record, the firm said. While Freeport and Cameron struggled to attain elevated capacity factors throughout the injection season, seasonal increases in demand and higher international LNG price markers in Europe and Asia have helped support increased demand.
“Last year, LNG exports averaged only 3.4 Bcf/d in November and December. If LNG feed gas demand can continue to average near recent highs, the 4.0 Bcf/d of year/year growth can help balance surging natural gas production gains,” EBW said.
Rampant production growth has been at the forefront of market dynamics throughout the summer. Although output dropped about 2 Bcf on Monday and held at that level Tuesday, the decline is viewed as likely temporary in nature.
The swelling supplies continue to increase gas storage inventories that have reached a considerable surplus over year-ago levels. The Energy Information Administration (EIA) is scheduled to release its weekly storage inventory report on Thursday, with estimates calling for an injection between 83 Bcf and 90 Bcf.
A Bloomberg survey of 13 analysts showed a median build of 85 Bcf. A Reuters poll of 18 market participants had a range from 66 Bcf to 94 Bcf, with a median of 85 Bcf. NGI projected a 93 Bcf injection.
Last year, the EIA reported a 49 Bcf injection, while the five-year average build stands at 65 Bcf.
With a large swath of the United States forecast to experience temperatures on Thursday that are far more common during Christmas, it appears Mother Nature has her holidays confused.
That’s what forecasters at AccuWeather are saying as a Halloween snowstorm is set to unload up to a foot of snow in some areas.
“Besides the snow, bone-chilling cold will settle into the central United States,” AccuWeather senior meteorologist Alex Sosnowski said. “Cold air and gusty winds will sweep from the northern and central Plains to the western Great Lakes region on Halloween.”
AccuWeather “RealFeel” temperatures are forecast to dip into the 20s, teens and single digits, and extra layers may be needed to protect Darth Vader, Elsa, Forky and the like from the brutal conditions.
Farther to the east, the storm is forecast to pump warm, moist air northward. Rainy conditions are likely for late Thursday from Alabama and the western part of the Florida Panhandle to Ohio, western and northern Pennsylvania, New York, southeastern Michigan and New England, according to AccuWeather.
Meanwhile, much of the central and northern Rockies will be under a fresh blanket of snow from storms earlier this week, the forecaster said. While winds will have diminished over the Rockies by late Thursday, temperatures are forecast to plummet from the 40s and 30s to the 20s and teens as the evening progresses. Temperatures in this area will be as much as 20-40 degrees below average.
It’s cold enough for minor freeze-off issues over the central United States, according to NatGasWeather. This cold shot will tap a bit more moisture over Texas and the southern Plains with increasing rain and snow, then spread it across the east-central and eastern United States through Friday.
“A strong reinforcing cold shot will follow across the Midwest and Northeast this weekend for continued strong national demand,” the firm said.
With daytime temperatures falling from the 80s to the 50s, spot gas prices across Texas were much stronger day/day. Katy jumped 17.5 cents to $2.660.
Out in West Texas, Waha rose nearly 30 cents to $1.880, while some trades at other Permian Basin pricing hubs were seen over $2.
On the pipeline front, Mojave Pipeline on Tuesday declared a force majeure due to equipment failure at its Topock compressor station along the California-Nevada border, which could limit around 75 MMcf/d of California imports based on the preceding 30-day average, according to Genscape Inc. Flows through Topock have averaged 412 MMcf/d in the last 30 days.
While Mojave provided no end date for the pipe work, analogous past events have typically lasted around five days and do not correspond with spot price movements in southern California.
“This event also comes less than a week after Southern California Gas increased its import capacity by completing long-standing maintenance on its L235-2 and L4000, which should further reduce the likelihood of this Mojave event disrupting area prices,” Genscape natural gas analyst Matthew McDowell said.
Most cash markets in the Rockies continued to strengthen, although after sharp 30-plus-cent increases the previous two days, gains were somewhat muted. Opal was up 12.5 cents to $3.155.
Interestingly, Northwest Sumas was the lone pricing hub in the region to soften day/day, with next-day gas shedding 12.5 cents to average $3.985. The loss was likely due to an increase in capacity through Westcoast Transmission’s Huntingdon constraint point.
A pipeline notice indicated that daily capacity on the T-South line would fluctuate in the near term. Once fully restored, the operational available capacity will be 2,062,833 gigajoules (GJ) for Station 4B South and 1,928,599 GJ for the Huntingdon delivery area.
In the Midcontinent, spot gas prices rose anywhere from a few pennies to as much as 15.5 cents, similar to those seen in the Midwest. REX Zone 3 Delivered climbed 9.0 cents to $2.585.
Prices were mixed on the East Coast, where some New England points were lower and Transco Zone 6 non-NY picked up a half-cent to hit $1.895.