Natural gas bulls are back in the game as the weather models uniformly trended colder overnight Monday. After the American data added an impressive chunk of demand in its midday run, the January Nymex gas futures contract spiked even higher before going on to settle Tuesday at $2.441, up 11.2 cents day/day. February jumped 9.7 cents to $2.405.
Spot gas prices were stronger as well as a robust winter storm that wreaked havoc on the central and eastern United States over the weekend refused to back out without a fight. Sharp gains in most of the country were partially offset by declines in New England, leaving the NGI Spot Gas National Avg. up 3.0 cents to $2.345.
After a bitterly cold start to the week in key demand regions across the United States, the question in recent days has been whether the cold had any staying power. Weather models often have been at odds but finally started to converge late last week, only to diverge again on Monday.
The overnight models, however, jumped “sizably colder,” with the uncommon occurrence of the European model moving toward the much colder Global Ensemble Forecast System (GEFS) over the last couple of runs, although the latter model remained much colder overall, according to Bespoke Weather Services. The changes come as both models pick up on a three-day colder push that interrupts the warmer setup around Dec. 11-13.
“The big question is, do we revert back warmer in the wake of this” or “stay on the colder side?” said Bespoke chief meteorologist Brian Lovern. The background forcing state would seem to argue more for the European model, “but it could simply be a timing issue.”
The colder path could be correct toward the latter part of the month, as tropical forcing works its way back to phases that favor colder weather, but Bespoke feels such a transition should be slower than the GEFS shows, and thus keeps its forecast closer to the European model.
The uncertainty in the weather outlook is warranted. The Global Forecast System (GFS) was much too cold for the first week of December before backing off considerably, which led to the sharp drop in prices last week, according to NatGasWeather. But now that's its added a large amount of demand, each new model run will be closely scrutinized to see if it holds it this time or again has to back off.”
There was no backing off in the GFS’ midday run.
The GFS added a hefty 30 heating degree days (HDD) in the latest run on top of the 25 HDDs it added Monday and Tuesday, NatGasWeather said. “So clearly strong bullish trends in the GFS the past few days, and especially so in the latest run.”
The afternoon run of the European dataset lost some demand for next week, but then added some for mid-December, though remained far less frigid than the American data.
The shift to the chillier side could be enough to take out some of the overwhelming bearishness currently in the market. Although storage inventories are already sitting about 550 Bcf above year-ago levels, the surplus is guaranteed to expand with this Thursday’s government data, according to Mobius Risk Group. From a sentiment perspective, the minus 10 Bcf to flat band is likely the range outside of which there could be a noteworthy price response.
“However, even a surprise storage number this Thursday could be secondary to the importance placed on weather forecasts for the second half of December,” the Houston-based firm said. “The second half of December 2018 was the fifth warmest in the past 69 years, and thus even normal weather could be enough to materially erode the 550 Bcf storage surplus currently weighing on the market.”
This week’s report “is a tricky one,” as most are when containing a major holiday, Bespoke said. Demand was a little below normal, but higher week/week. Burns on a weather-adjusted basis were weaker, while supply was slightly higher.
“Adding all of this up and factoring in holiday impact, we come up with an initial estimate of a 24 Bcf draw for Thursday’s report,” Lovern said. “Unless the number deviates strongly one way or the other, it will be difficult to read much into the number, however. We do feel, if incorrect, the risk is tilted toward a slightly lower draw, given the weakness in last week’s burns.”
Spot gas prices were mostly stronger on Tuesday even as Old Man Winter was offering a reprieve of sorts to much of the country. Most regions put up gains of up to 20 cents, although West Texas points continued to surprise to the upside with much stronger increases.
The East Coast, meanwhile, put up some of the only losses seen across the United States as “the big storm train across the eastern two-thirds of the nation will take a bit of a break to refuel this week," AccuWeather long-range meteorologist Tyler Roys said.
It won't be a total break from winter weather. Cold that is more on par with the middle of winter and a couple of weak Alberta clipper systems are forecast to pester the region through the rest of the week, according to AccuWeather. Afternoon high temperatures are expected to hold in the 20s and 30s, about 5-10 degrees below normal, from the north-central to northeastern United States.
One of the clipper systems, projected to arrive late in the week, will draw in even colder air for the northern Plains, with temperatures on Thursday and Friday struggling to reach the teens for highs across the northern Plains, AccuWeather forecasts show.
Meanwhile, each of the clipper systems that dives in will likely spread a swath of light snow through the Great Lakes and Northeast. The first disturbance is expected to slide through the Great Lakes and Northeast into Wednesday night. The second will cross from later Thursday through Friday.
The second clipper will be the stronger of the two systems, and it will bring a chance for some accumulating snow farther south and east, including across portions of the mid-Atlantic and southern New England.
“The pattern looks to turn more active again toward the middle of December,” Roys said.
For now, however, the break in between systems sent prices across most of the Northeast tumbling. In New England, Algonquin Citygate next-day gas plunged 61.5 cents to $4.040. Transco Zone 6 NY, however, rose 7.5 cents to 2.485.
Appalachia prices were also higher, with Tenn Zone 4 200L climbing 14.0 cents to $2.115.
Gains seen across the Southeast and into Louisiana ranged from just a few pennies to as much as 16 cents, a similar trend seen throughout most of the Midwest and Midcontinent. One exception in the producing region was NGPL Midcontinent, where spot gas shot up 23.0 cents to $1.475.
Meanwhile, Permian Basin pricing continued to improve Tuesday. El Paso Permian next-day gas averaged 25.5 cents higher at $1.435, although individual transactions were seen as high as $1.750.
In East Texas, Katy cash rose 13.5 cents to $2.250.