Following a sharp sell-off a day earlier, natural gas futures were trading slightly higher early Tuesday, although the latest forecasts pointed to mild temperatures and limited demand moving toward Christmas. At around 8:40 a.m. ET, the January Nymex contract was trading 2.0 cents higher at $2.252/MMBtu.
The return of some heating degree days to the outlook helped prices recover somewhat in trading late Monday, but the overnight Global Forecast System (GFS) “flipped back milder” to lose all of the demand it had added, according to NatGasWeather.
“The overnight European model trended colder late this weekend and early next week, but was milder trending before and after, offsetting,” the forecaster said. “But with the GFS losing demand overnight, it’s now finally quite close to the European model for the 15 day forecast.
“What the natural gas markets are likely to notice most is both the GFS and European models are quite bearish with the setup Dec. 20-25, favoring warmer than normal conditions dominating most U.S. regions besides portions of the West for light national demand.”
Looking longer-term, in a recent note to clients, analysts at Energy Aspects said 2020 prices remain under bearish pressure based on “lackluster” pipeline exports to Mexico -- even with the start-up of the Sur de Texas-Tuxpan pipeline -- and based on production readings showing output “on a veritable tear.”
“November flow data are suggesting a 1.1 Bcf/d increase month/month, and if the current clip of daily production readings is maintained for the rest of the month, December output would be up by 0.9 Bcf/d month/month,” the Energy Aspects analysts said. “Given the momentum of recent production, it would appear that follow-on growth should be expected for December unless weather is cold enough to prompt freeze-offs in some producing regions.
“Such an exceptionally strong pace of 4Q2019 production growth calls into question how much it will slow in 1Q2020,” according to the analysts. “For some time, our balances have called for a slowdown in sequential growth in 1Q2020 as a way to contain end-March storage below the psychological 2.0 Tcf level. Our average 1Q2020 sequential growth per month is at just below 0.3 Bcf/d, but the jury is still out on whether momentum will slow enough for this expectation to be feasible.”
With the latest Commodity Futures Trading Commission data showing managed money piling on the short positions, the current dynamic “screams for a short covering rally,” according to analysts at Enverus. However, fundamentals point to further price declines, they said.
“Market internals developed a slightly bearish bias as prices failed on the rally early last week, only to decline and break lower on significantly higher volume and higher open interest,” the Enverus team said. “Prices confirmed the intermediate high end of the range last week when they failed at a test of $2.51. Prices are now testing support and have opened the trade this week with a gap from last Friday.
“Further declines will take prices to the area of support between $2.187 and $2.159 and down to $2.12, and potential exists for an eventual break down to the August lows of $2.029.”
January crude oil futures were trading a penny higher at $59.03/bbl at around 8:40 a.m. ET, while January RBOB gasoline was trading fractionally lower at $1.6547/gal.