After an initial swoon, natural gas futures regrouped to finish higher Monday, shrugging off a bearish weather outlook as the focus remained on the potential effects of the economic slowdown from the Covid-19 outbreak. The May Nymex contract dropped as low as $1.613/MMBtu but went on to settle at $1.690, up 1.9 cents.
Meanwhile, after widespread discounts late last week, most spot price hubs recovered modestly in Monday’s trading; NGI’s Spot Gas National Avg. climbed 9.5 cents to $1.365.
Monday’s futures price action served up a “classic example of why we have stressed low confidence and the likelihood of erratic price action in this kind of trading environment,” Bespoke Weather Services said.
Compared to Friday’s numbers, the “key data points were actually bearish,” including an uptick in production over the weekend and a “notable” drop in weather-driven demand expectations, according to the firm.
“Our stance remains that the only issue that truly matters is how much demand will ultimately be lost by the slower economy, which at least somewhat explains the correlation with the equities market, as optimism there equates to optimism that perhaps demand will be impacted for a lower period of time,” Bespoke said. “The problem is that this sentiment changes seemingly daily.”
Feed gas deliveries to U.S. liquefied natural gas (LNG) terminals have thus far proved resilient in the face of the coronavirus, but that could change in the near future.
“So far there do not appear to be any notable disruptions of LNG feed gas volumes amid Covid-19, though many are waiting for the shoe to drop,” Genscape Inc. senior natural gas analyst Rick Margolin said Monday. “Daily feed gas flows have pulled back ever so slightly in recent days but not at an alarming rate.”
After approaching the 9.2 Bcf/d mark on March 22, volumes averaged 8.8 Bcf/d over the next eight days, according to Genscape’s estimates. But Margolin said the month of April is expected to bring more noticeable declines for feed gas volumes.
Genscape supply and demand projections “began warning as early as late November that the spread between U.S. export locations and global demand markets was rapidly compressing, threatening export economics,” Margolin said. “By mid-January, the first downward adjustments to our LNG export forecasts were implemented, followed by a more substantial reduction in mid-February. Shortly thereafter came confirmed announcements that offtakers were canceling cargoes for April receipt.”
Prices strengthened in Monday’s trading, but Covid-19 continues to pose downside risks for natural gas. EBW Analytics Group analysts warned that the “bottom could fall out” soon for prices.
The number of reported virus cases has continued to “soar,” while the Trump administration has extended social distancing measures to the end of April amid warnings that the virus could kill 100,000-200,000 Americans, the EBW analysts noted.
“In the face of these bleak developments, natural gas prices are likely to remain under downward pressure -- with the potential for pressure to accelerate once the magnitude of likely demand losses due to the contagion becomes more apparent,” they said.
For the most part, spot prices rebounded Monday after posting widespread discounts late last week. Henry Hub picked up 3.0 cents to $1.655.
In the near term, the northern portion of the country is expected to be the “primary driver of temperature-driven demand,” according to NatGasWeather.
“Warm conditions will continue across the southern U.S. this week, with highs of upper 60s to 80s, although not as hot as last week,” NatGasWeather said. “The northern U.S. will see weather systems track across with rain and snow showers, focused over the Northwest, Great Lakes and Northeast.
“Highs across the northern, western and central U.S. will still be rather mild, with 40s to 60s and very little coverage” of temperatures down into the 30s, resulting in “moderate but not strong” demand overall.
The largest day/day gains occurred in the Northeast and Appalachia.
Recent shipper notices may be an early indication of the stress Covid-19 demand destruction could have on pipeline systems, according to Genscape. The firm pointed to notices from the Algonquin Gas Transmission, Maritimes & Northeast and Millennium pipelines warning of operational restrictions due to increased volumes of gas being left on their systems.
“New England demand Friday and Saturday dropped to just 1.8 Bcf/d, the third lowest-ranked days in the month of March in the past five years,” Margolin said. “The lowest-ranked day of March was set the previous Friday. Although weather in the area has been relatively seasonal, New England weather-adjusted demand figures are beginning to deviate from normal by about 0.3 Bcf/d.”
In the Midwest, price adjustments were mixed, with Emerson easing half a cent to $1.415, while Chicago Citygate added 5.0 cents to $1.445. Farther west, a number of Rockies and California hubs saw gains of around a nickel, including Malin, which picked up 5.0 cents to $1.335.