A return of frigid air failed to materialize in the latest weather models, crushing any chance that Friday’s early gains could hold through the weekend. The March Nymex gas futures contract settled at $1.858/MMBtu, down four-tenths of a cent from Thursday’s close. April climbed a half-cent to $1.892.
Spot gas prices also hardly budged as warming temperatures in the south and southeastern United States combined with plunging temperatures farther east. The NGI Spot Gas National Avg. ultimately climbed a half-cent to $1.765.
Most of the weather data trended a little milder overnight Thursday, but futures traders initially disregarded the increasingly bearish outlook. The March Nymex contract hit close to $1.90, up about 3.5 cents day/day, before the Global Forecast System (GFS) model’s midday run tempered those gains.
The early increases, obviously not due to chillier weather outlooks, may have been linked to traders still digesting Thursday’s storage data. The Energy Information Administration (EIA) reported a much larger-than-expected 137 Bcf withdrawal for the week ending Jan. 31, although the draw paled in comparison to last year’s 228 Bcf and therefore expanded the surplus to year-ago levels to a massive 615 Bcf.
Estimates ahead of the EIA report pointed to a draw closer to 130 Bcf, with at least one projection as low as 109 Bcf. The 137 Bcf pull was 2 Bcf larger than Genscape Inc.’s call for a 135 Bcf withdrawal and appears tight/bullish by approximately 3.7 Bcf/d versus the five-year average when compared to degree days and normal seasonality.
“Weekly storage stats have been trending tighter versus weather,” and the latest report “is the tightest we have seen since some of the coldest weeks in winter 2017-2018,” Genscape senior natural gas analyst Eric Fell said.
The tightness is being driven by a recent decline in production due to freeze-offs, maintenance and some natural declines starting to set in, according to Fell. Adding to the tight balances are strong power demand due to low gas prices, surging liquefied natural gas (LNG) exports and heating degree day-driven demand growth in the residential/commercial sector that shows up in winter.
But the latest GFS model shaved a few heating degree days (HDD) off the 16-day total, and traders took notice. Specifically, the midday GFS was a little colder for the Feb. 13-14 period as a fairly strong cold shot is forecast to impact the Great Lakes and Northeast, according to NatGasWeather. However, the model was milder for Feb. 17-19 by seeing a stronger/milder break set up over the South and East. Another glancing cold shot was favored by the GFS for Feb. 20-22, but far from frigid without the cold pool shifting farther south.
“It’s important to consider the weather models have been inconsistent all week, flip-flopping between colder and milder trends as they struggle to determine exactly how much frigid air over Canada will push across the border” late this week and beyond, NatGasWeather said. “But the Feb. 14-20 pattern is still better than recent weeks, providing better opportunity for weather to take advantage of a tighter supply/demand balance.”
Beyond U.S. borders, there are other headwinds developing, at least in terms of sentiment, according to Mobius Risk Group. Uncertainty regarding the demand for LNG shipments in China continues to grow and although China has not taken a U.S. cargo since last spring due to trade tensions between the two countries, any long-term hit to demand could make the current global gas glut even worse.
China National Offshore Oil Corp.’s (CNOOC) decision to declare force majeure and refuse some contracted LNG shipments due to weak demand and the virus delivered a crushing blow to an already overwhelmingly bearish global market. Both Total SA and Royal Dutch Shell said they rejected the force majeure, but any additional downward pressure on the market will almost certainly translate to continued headwinds for Nymex futures, according to Mobius.
“It is also important to keep in mind the distinct difference between prognostications/expectations versus reality,” the Houston-based firm said. “Observed data points, which are by nature more definitive, have illustrated a balance tightening in the United States which proves current prices are adequately solving for the potential of future oversupply.”
Nevertheless, the coronavirus has sent already low global gas prices spiraling even lower, crushing the spread between the Gulf Coast and overseas markets in Europe and Asia. Furthermore, CNOOC’s force majeure decision may be the first of many for Chinese LNG importers who physically cannot receive additional cargoes due to full storage tanks, EBW Analytics Groups said. A “cascade” of forces majeure could further depress Asian LNG prices, “close already-narrow arbitrage windows and eventually prompt U.S. feed gas cuts.”
With the mercury rising to comfortable levels following a midweek winter storm, spot gas prices were relatively steady Friday. Gains and losses were capped at a few pennies across most of the country, while the majority of big movers were concentrated in the Northeast, where a storm dropped copious amounts of rain from Virginia to New York beginning Thursday night.
An all-out snowstorm was forecast for the northern tier of the Northeast into Friday night, according to AccuWeather meteorologist Bernie Rayno.
Snow was beginning to fall in earnest across the upper Ohio Valley early Friday, with snowfall rates predicted to be 1 inch/hour or higher, the forecaster said. This band of heavy snowfall was expected to continue pivoting northeastward throughout Friday.
“A general six to 12 inches of snow will fall in the swath from parts of northwestern and north-central Pennsylvania to central and northern Maine, but a 12- to 18-inch band is in store farther over the northern tier of the Northeast where an AccuWeather Local StormMax of 24 inches is likely,” Rayno said.
In the wake of the storm, some colder air was forecast to spill into parts of the interior South and along coastal areas of the mid-Atlantic and southern New England. However, since the next storm is forecast to take a northerly track across the Great Lakes this weekend and then over the St. Lawrence Valley on Monday, any substantial snow from it will tend to be limited to the northern tier of the Northeast, according to AccuWeather.
Prices were also mixed in Appalachia, but day/day changes were limited to less than a nickel in most markets.
The majority of pricing hubs throughout the Southeast and Louisiana traded in the black on Friday, but only by a couple of pennies.
Only a handful of markets in the Midcontinent posted larger gains, including NGPL Midcontinent, which climbed 8.5 cents to $1.610.
Texas was a sea of red, with losses in the western part of the state coming in at more than a dime across the region. El Paso Permian fell 12.5 cents to average 38.0 cents.
Other points along the El Paso Natural Gas System in the Rockies also softened day/day, while most other market hubs in the region climbed a few pennies.