Unimpressive weather outlooks for the remainder of the month combined with a fresh high for natural gas production to send forward prices mostly lower for the Nov. 14-20 period, according to NGI’s Forward Look.
However, sharp gains in the chillier western regions lifted the overall average for December up 2 cents, while January and the balance of winter (December-March) each slipped 3 cents on average.
Unlike last week, which brought about dramatic declines, losses across the majority of forward curves were rather subdued at less than a dime. That’s because the latest weather models have started to hint at chillier weather for December, with both the American and European models trending colder in recent runs.
In terms of projected demand over the next couple of weeks, Bespoke Weather Services early Thursday said it saw little change in the modeling compared to the previous 24 hours, but the end of the 11- to 15-day period in both the Global Ensemble Forecast System and the European Centre for Medium-Range Weather Forecasts is colder than normal. In addition, some of the western cold is appearing to spread eastward, which keeps concerns alive regarding colder risks to the month of December as a whole. The midday run of the Global Forecast System model maintained its outlook.
North Atlantic Oscillation blocking looks much weaker late in the 11- to 15-day, however, and the tropical forcing signal remains unclear, all of which when combined together keeps confidence below average, according to Bespoke. The firm still leans toward a milder turn moving deeper into December, even if temporary, “but need to see hints of this showing in the 15-day modeling before confidence can increase. Conversely, if the tropical forcing signal fades, support for turning warmer would fade as well, increasing colder risks.”
NatGasWeather said it’s difficult to know how the markets will react to the data since the trend has been less impressive for Thanksgiving Day through the following Saturday, but it’s still plenty cold enough Dec. 1-5. The latest government storage data was also expected to sway the market given that it reflected the first widespread Arctic blast to hit the United States this winter.
Indeed, the first withdrawal of the season made a splash, coming in just 6 Bcf shy of the triple-digits and with a major surprise out of the South Central region.
The U.S. Energy Information Administration reported a 94 Bcf withdrawal for the week ending Nov. 15, landing on the high side of expectations and well above consensus.
Ahead of the report, a Bloomberg survey as of Wednesday afternoon showed a median prediction for an 88 Bcf pull, with estimated withdrawals ranging from 82 Bcf to 99 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at minus 87 Bcf. NGI’s model predicted a 101 Bcf withdrawal.
Last year, EIA recorded a 109 Bcf pull for the period, and the five-year average is a withdrawal of 32 Bcf.
Bespoke said the reported 94 Bcf draw is “easily the tightest number we have seen in quite awhile.” That said, the firm still views the report as neutral overall because the market had “tail-event cold” last week, which significantly boosted power burns, which already looked notably looser this week.
Also, while the market failed to see the level of freeze-offs that it was concerned about, production was lower last week and has already made a new all-time high this week. “This tells us that the tight number is likely a one-off event, at least until we see the return of stronger cold back into the picture. This explains why the initial pop in price has, so far, been sold.”
To be sure, in the hour leading up to the EIA report, the December Nymex gas futures contract had been trading around $2.550-2.570. As the figure crossed trading screens at 10:30 a.m. ET, the front month briefly rallied to as high as $2.590 before receding back to around pre-report trade levels. The prompt month went on to settle Thursday at $2.567, up just eight-tenths of a cent day/day.
Broken down by region, the South Central reported a 33 Bcf withdrawal, including a 20 Bcf pull from nonsalt facilities and a 14 Bcf draw from salts, according to EIA. The Midwest reported a 37 Bcf withdrawal, and the East pulled 23 Bcf from storage. Only minor changes were seen in the Pacific and Mountain regions.
Working gas in storage as of Nov. 15 stood at 3,638 Bcf, which is 506 Bcf above year-ago levels and 60 Bcf below the five-year average, EIA said.
If current weather forecasts hold, the 94 Bcf aggregate withdrawal would be the third-largest pull until mid-January, according to EBW Analytics Group. The market is recognizing that “even this sizable draw will be insufficient to narrow the year/year storage surplus -- and further increases in the surplus are likely into early December -- depleting support for the Nymex front month.”
Speculators have been aggressively shorting the market since mid-summer, EBW noted. With bearish fundamentals in shorts’ favor, further declines are likely over the next month and a half absent significant bullish forecast shifts.
“Further neutral-to-bearish weather forecasts persisting into December”, weather forecaster DTN’s most likely weather scenario, “is likely to lead to a further contraction in the winter risk premium,” EBW said. “It remains possible that the March contract will fall into contango to the 2020 injection season strip by later this winter.”
Sloppy, wintery weather moved into the western United States this week, and with more on the radar for Thanksgiving Week, forward prices rallied across the region.
Next week’s storm threatens to bring rain and mountain snow to much of California and should continue to help wind down the fire season across the state, according to AccuWeather. The storm is forecast to spread rain along the Northern California coast late into Tuesday night and has the potential to bring a brief period of gusty winds to many areas. Downpours could lead to localized flooding and even a few mudslides in areas that have been impacted by wildfires recently, the forecaster said.
“Slippery conditions can also develop along Interstate 5 over Siskiyou Summit just north of the California/Oregon border from Wednesday and Wednesday night,” AccuWeather senior meteorologist Alex Sosnowski said.
If the cold air drills in farther south, it's not of the question that some wet snow could mix in over Tejon and Cajon passes in Southern California, according to AccuWeather.
"Wintry weather would probably reach the Southern California passes Wednesday or Wednesday night, which is probably the busiest time for travel," Sosnowski said.
The same storm is forecast to bring drenching rain to the interior Southwest as well. After the midweek storm moves out, another storm system is expected to move into California heading into the Nov. 30-Dec. 1 weekend.
Complicating the expected surge in demand is a planned high inventory shut-in at the Southern California Gas (SoCalGas) Honor Rancho storage field, which has limited withdrawals since Nov. 15. The market has turned to Aliso Canyon to make up the slack, and prices have responded accordingly.
Citing NGI price data, Genscape Inc. said the SoCal Citygate cash basis price hit $3.47 during Wednesday’s trading, the first time it printed above $3 since March 4. Through Nov.18, the average effective SoCal Citygate basis price on a day with an Aliso Canyon withdrawal in 2019 was $5.99, compared to 71 cents on days without a withdrawal and a $1.34 average overall.
“Since July, SoCalGas is operating under a new Aliso Canyon withdrawal protocol, which does not require that facility to be used as an ‘asset of last resort.’ Since that new protocol went into effect and prior to this week, the only day with a posted Aliso withdrawal was Aug. 28,” Genscape analyst Joseph Bernardi said.
Although the Honor Rancho event is scheduled to end on Nov. 27, the rally that ensued in the spot market spilled over into forwards.
SoCal Citygate December fixed prices jumped $1.22 from Nov. 14-20 to reach $5.534, according to Forward Look. January rose 76 cents to $4.761 and the balance of winter climbed 55 cents to $4.372. That’s where the volatility ended, as the summer 2020 strip (April-October) held steady at $2.74.
At PG&E Citygate, December edged up 23 cents to $3.394, January tacked on 15 cents to reach $3.294 and the balance of winter climbed 12 cents to $3.183. Summer rose 8 cents to $2.84.
Over in the Rockies, softer imports from Canada lent support to forwards. In addition to strong demand north of the border, lagging storage inventories have also limited flows into the Rockies in recent weeks.
The tight supplies boosted Northwest Sumas December prices by $1.62 from Nov. 14-20 to reach $5.521, Forward Look data show. January was up 73 cents to $4.286 and the balance of winter was up 74 cents to $4.009. Summer 2020 was flat at $1.78.
Meanwhile, Permian Basin forward markets came under pressure from incredibly weak cash prices in recent days as restrictions on El Paso Natural Gas combined with mild weather to erode demand. Waha cash on Monday plunged some 70 cents to average 92.5 cents, with prices remaining below $1 by Thursday’s gas day.
Genscape on Tuesday showed the region’s demand sample down by about 5% from the 30-day average, particularly visible power burns. Meanwhile, the return of mild temperatures has enabled the region to recover from any freeze-offs that hit last week.
“Our estimate of regional production has been running well in excess of 10.6 Bcf/d this week, nearly 0.4 Bcf/d above the 30-day average,” Genscape senior natural gas analyst Rick Margolin said.
Although holding above $1, forward prices in the Permian were hit harder than most other markets across the country. Waha December fell 14 cents from Nov. 14-20 to reach $1.166. January dropped a dime to $1.474 and the balance of winter slipped 8 cents to $1.160, according to Forward Look.