- EIA’s massive 107 Bcf storage draw tempers losses for Nymex natural gas futures
- Weather seen remaining unusually warm further into new year
- Cash declines further as Northeast markets plunge on milder weather
A much larger-than-expected storage withdrawal trimmed steeper losses for natural gas futures on Thursday. However, with an increasingly unsupportive weather outlook through the early part of 2020, the January Nymex contract settled at $2.273/MMBtu, down 1.3 cents from Wednesday’s close. February finished the day one-tenth of a cent higher at $2.265.
Spot gas prices also continued to slide across the board, with the Northeast finally joining the rest of the country by sending prices much lower for Friday gas delivery. The NGI Spot Gas National Avg. tumbled 45.0 cents to $2.955.
With this week’s Alberta Clipper storm now in the rearview mirror, attention turned to weather patterns for the rest of the year and into 2020. Weather models this week have continued to trend warmer and the latest data hints that the mild setup could last longer into January than initially forecast.
The Global Forecast System (GFS) and European models both lost a few heating degree days (HDD) overnight, with a very bearish pattern still favored Dec. 20-30 as upper high pressure dominates most of the country besides the West, according to NatGasWeather. Although the GFS teases that cold air could return at the turn of the year, the outlook remains far from frigid.
“It will take much colder weather maps in early January to rid current strong bearish weather headwinds, yet prices have held up quite well this week despite this fact,” NatGasWeather said.
To be sure, the latest government storage data gave bulls some optimism as the reported withdrawal was far above what the market had expected.
The U.S. Energy Information Administration (EIA) on Thursday reported a 107 Bcf withdrawal from natural gas storage for the week ending Dec. 13. The reported draw soared past consensus of a pull in the low 90s Bcf and was even several Bcf above the highest projection in market surveys. However, the 107 Bcf withdrawal was still far below the 132 Bcf withdrawal EIA recorded in the year-ago period and several Bcf below the 112 Bcf five-year average draw.
Nevertheless, the triple-digit pull took the natural gas market by surprise, with prices responding immediately to the latest EIA data. About five minutes before the 10:30 a.m. ET report, the January contract was trading at $2.257, down 2.9 cents from Wednesday’s settle. As the EIA print crossed trading desks, however, the prompt month strengthened to trade just fractionally lower at $2.278.
Bespoke Weather Services viewed the triple-digit draw as “a strong number, although with a couple of caveats.” The main one, of course, is the weather.
“The balance tightening we have seen in the data appears to be confirming, but as long as the pattern stays on the warm side, we really cannot rally very far, and in fact could still move lower,” Bespoke chief meteorologist Brian Lovern said. “It also could be somewhat of a ‘make up’ for what was a lower number last week, but we won’t know this until we see how next week shakes out.”
Broken down by region, the Midwest reported the largest withdrawal of 40 Bcf, and the East came in second with a 29 Bcf pull, according to EIA. The South Central withdrew 26 Bcf out of storage, including a stout 24 Bcf pull from nonsalt facilities and a 2 Bcf pull from salts.
“The South Central is the biggest miss here,” said independent weather forecaster Corey Lefkov on The Desk’s energy chat room Enelyst.com. “Don’t mess with Texas.”
Total working gas in storage as of Dec. 13 stood at 3,411 Bcf, 618 Bcf higher than the year-ago period and 9 Bcf below the five-year average, according to EIA.
Andrea Paltrinieri, markets adviser to NatGasWeather, said the 107 Bcf draw sets the stage for a potential 160 Bcf withdrawal in the next EIA report. His 104 Bcf estimate for this week’s report was considered a highballer, but given the actual print, “if we keep this tightening, it will be an interesting time ahead.”
Indeed, the combination of low cash prices, max power burns and record liquefied natural gas (LNG) demand could lead to some volatile days ahead. However, “if we torch up the first two weeks of January, my view is that weather always wins in wintertime,” Paltrinieri said.
NatGasWeather meteorologist Rhett Milne agreed and said although weather models are starting to tease at colder air arriving in early January, it’s “going to be a painful stretch of weather to get through during the next 10-12 days.”
Mobius Risk Group, however, warned that anytime cooler changes show up in the GFS, the market dismisses them. Disregarding the shifts is “understandable” since December cold has never materialized, despite several instances of a forecast pattern change. However, “it is important to consider how quickly a discounted view of weather risk can turn when the speculative community is as short as it currently is.”
EBW Analytics Group shared that sentiment, saying that a near-record short positioning represents a potential “tinderbox” if bulls can force a short-covering rally.
“Net speculator short positioning is a contra-indicator. Record short positions in mid-August and mid-October pre-dated significant short-covering rallies in early September and early November,” the firm said. “Near-record speculator short positioning in mid-December could foreshadow a similar rally in early January.”
Nevertheless, it likely requires a strong fundamental catalyst, “which remains far from guaranteed, to ignite a short-covering rally higher.”
Spot Gas Plunges
After a numbing week in which temperatures across much of the northern United States plummeted to the single digits, a much warmer stretch of weather was set to arrive, sending demand barreling lower from recent highs.
The mercury was forecast to reach 50 degrees or higher Saturday for cities including Oklahoma City, Denver and Rapid City, SD, according to AccuWeather, with the unusually mild weather expanding northward and eastward on Sunday. Highs are likely to reach the 40s in Minneapolis and Chicago before closing out the weekend.
Similarly warm conditions are expected farther south across the Plains and by Sunday; temperatures in the 60s are forecast across the Texas and Oklahoma panhandles, Kansas and across portions of eastern Colorado, AccuWeather said.
In Kansas City and St. Louis, temperatures are forecast to climb into the 50s for early next week, a far cry from this past weekend, when more than half of a foot of snow fell over these same areas.
“It will feel more like Thanksgiving than Christmas for many areas in the central United States leading up to the holiday as highs will be more on par with mid-November," AccuWeather meteorologist Courtney Travis said.
The warmer forecasts sent spot gas prices across the Northeast tumbling from the recent highs achieved this week as demand hit 4 Bcf/d and pipeline constraints strained supplies.
Tenn Zone 6 200L spot gas tumbled $2.650 to average $12.010.
Transco Zone 6 NY dropped $2.180 to reach $3.425.
In Appalachia, Texas Eastern M-3, Delivery spot gas was down $2.265 to $3.320 as traders responded to the latest maintenance update from Texas Eastern Transmission (Tetco).
The pipeline is continuing to investigate potential hard spot anomalies between the Delmont and Perulack compressors on the M3 Penn-Jersey Line. Progress has been delayed due to inclement weather despite the work that has been made so far, Genscape reported.
The pipeline expects that “they will have analyzed enough anomalies by early next week to decide whether to lift the Delmont outage entirely, or whether additional work is required,” Genscape natural gas analyst Josh Garcia said.
Similar progress has been made for investigations between Bechtelsville and Lambertville, although Tetco expects that the decision will be made to either lift the outage or extend it for more maintenance between Dec. 27-30.
Only two instances of location remediation are left in progress between Perulack and Shermansdale, according to Genscape. Assessments are in progress and Tetco expects to lift the roughly 350 MMcf/d restriction between these compressors by the end of the week, on either Friday or Saturday.
“This would alleviate some of the bullish pressure on M3 prices as Tetco would be able to bring more supply onto the pipe via the Tetco-Leidy Line and meet more downstream demand,” Garcia said.
Over in the Southeast, spot gas prices were down sharply. Transco Zone 5 tumbled $1.805 to average $2.995. Louisiana cash was mixed, but prices less than a nickel across most of the state.
Similarly, modest losses were seen across Texas, where Katy slipped 2.0 cents to $2.125.