Forecast maps red with warmer-than-normal temperatures threatened to make it a “Blue Christmas” for natural gas futures bulls Monday. The January Nymex contract skidded 11.4 cents to settle at $2.214/MMBtu as the latest guidance showed mild December weather stretching well into the first week of 2020.
In the spot market, lackluster demand expectations accompanied discounts throughout the Lower 48 as traders prepared to head home for the holidays; the NGI Spot Gas National Avg. dove 19.5 cents to $2.270.
The midday data from the Global Forecast System (GFS) Monday maintained milder trends from over the weekend, including for the first week of January, according to NatGasWeather.
“Stronger cold shots are still expected across the Midwest and Northeast the last couple days of December and again the first week of January. It’s just the weather data has trended less impressive with the amount of subfreezing air into the U.S. and also doesn’t advance cold air as far southward,” NatGasWeather said. “What makes the pattern quite bearish is the important European model sees only modest amounts of cooling into the northern U.S.” in early January compared to the colder GFS.
“Since the GFS has been woefully over-forecasting cold outbreaks for more than a month,” markets are likely to be skeptical unless the European model is also “on board with any colder patterns,” the forecaster said.
Meanwhile, Commodity Futures Trading Commission data as of last Tuesday (Dec. 17) showed the managed money short sector “slowing positions by adding just 243 contracts,” according to analysts at Enverus. Meanwhile, the managed money long sector added 5,292 contracts week/week, the firm said.
“It seems that the speculative short trade expects further price declines,” the Enverus analysts said. “However, there was no major extension downward” in last week’s trading.
Looking ahead, given potential shifts in forecasts, “the traditional lighter holiday trade and the January contract expiration on Friday, pricing that day could become volatile,” according to the analysts. The Dec. 9 low at $2.158 “should hold the declines, and prices above $2.38 are likely to force traders to roll short positions into the February contract.”
Looking at the latest supply picture, Genscape Inc. estimated total Lower 48 production of 94.3 Bcf/d over the weekend, up from 93.8 Bcf/d last week and flat with the 94.3 Bcf/d month-to-date average.
“Production is still trailing our forecast for the month by about 0.3 Bcf/d with persistent outages in the East and freeze-offs in the West,” Genscape senior natural gas analyst Rick Margolin said. “Last week we saw freeze-offs take out more than 1.1 Bcf/d of production. This winter-to-date continues to show more cumulative freeze-offs than any winter since at least Winter 2013/14.”
Discounts were the norm for most spot price hubs Monday as those hoping for classic wintry conditions this Christmas appeared likely to come away disappointed.
The National Weather Service (NWS) predicted “dry and mild” conditions on Christmas Eve and Christmas Day for most of the country.
“Santa could give Rudolph’s red nose a break across the eastern half of the U.S. Christmas Eve night as dry conditions will be common for most eastern regions,” the NWS said. “In fact, tranquil weather conditions through Christmas Day will make for a nice stocking stuffer from Mother Nature for those traveling through the holiday.
“High temperatures in parts of the nation’s midsection will soar into the 60s, while parts of the Southern Plains will reach the 70s both Christmas Eve and Christmas Day. Temperature anomalies will on average range between 10-15 degrees above normal from the Great Plains to the Northeast through mid-week.”
Points throughout the Gulf Coast and Midwest generally dropped around 10-20 cents Monday. Henry Hub slid 8.5 cents to $2.160.
Given mild weather and the Christmas holiday, Genscape analysts on Monday projected “relatively weak” demand for the week ahead. The firm’s meteorologists were expecting Lower 48 population-weighted heating degree day (HDD) totals to average close to 5 HDDs warmer-than-normal between Monday and Jan. 1.
Add in the impact of the upcoming Christmas and New Year’s holidays, and Genscape’s demand projections pointed to an average 87.3 Bcf/d for the period.
Bulls still may find reasons to stay cheerful this holiday season, as Genscape’s Margolin said liquefied natural gas (LNG) feed gas demand “should remain steady.” Genscape estimated total LNG deliveries at 7.7 Bcf/d Monday, with volumes setting a new record high at 8.04 Bcf/d on Saturday.
NGI’s LNG Insight similarly showed LNG feed gas volumes topping the 8 million Dth/d mark in recent days, peaking at 8.59 million Dth/d last Friday (Dec. 20).
Elsewhere on the exports front, Genscape was calling for pipeline exports to Mexico to drop nearly 1 Bcf/d from normal levels due to the holidays.
Elsewhere, West Texas locations traded at a hefty discount to surrounding regions as the Permian Basin continues to exhibit symptoms of takeaway congestion. Waha plunged 46.5 cents Monday to average 96.0 cents.
Residue gas in the Permian could be headed for “another round of severe takeaway constraints in early 2020, potentially leading to severe discounts” at Waha, according to analysts at East Daley Capital Advisors Inc.
Permian natural gas prices will likely be reliant on increases in West Texas-to-Mexico export capacity in 2020 to avoid a repeat of the cratering that occurred in the spring of 2019, they said in a recent note.
“However, with Kinder Morgan’s 2 Bcf/d Permian Highway expected to begin line fill operations by late 4Q2020 and Whistler slated to come online mid-2021, there is some light at the end of the tunnel” for prices in the region, the East Daley analysts said.