See-saw price action continued in the natural gas futures market Tuesday, with the prompt month relinquishing overnight gains as mild weather and Covid-19 demand destruction weighed down the front of the curve. The May Nymex contract traded as high as $1.731/MMBtu but went on to settle at $1.640, down 5.0 cents.

In the spot market, gains in the Midwest and Appalachia helped lift NGI’s Spot Gas National Avg. 7.0 cents to $1.435.

Heading into Tuesday’s trading, the overnight guidance trended bearish for next week’s pattern, and the midday Global Forecast System reinforced this milder look, advertising a decline of 20 heating degree days (HDD) compared to forecasts last week, according to NatGasWeather.

The milder trends in recent forecasts have focused on the northern part of the country as “very nice early spring conditions set up across the Midwest and Northeast with highs of 60s from Chicago to New York City,” NatGasWeather said. “The southern U.S. will remain quite comfortable going forward, with highs of 70s and 80s, nearly ideal for early spring, although occasionally getting a touch hot late next week as lower 90s attempt to gain coverage.

“...Simply put, unless stronger cold shots return into the northern U.S., or hot conditions build across the southern U.S., weather patterns will maintain a bearish bias through mid-April. But again, there are many other factors strongly in play, highlighted by oil and gas production trends impacted by Covid-19 and oil price wars.”

As the coronavirus pandemic hangs over the global economy, natural gas traders had to factor in potentially major impacts to both supply and demand.

“The natural gas market is in an interesting and unpredictable time right now,” analysts at Enverus said. On one hand, the collapse in crude oil prices and the resulting capital expenditure (capex) cuts “will lead to less associated natural gas supply. On the other hand, the Covid-19 pandemic has tens of millions of Americans under stay-at-home orders, so many businesses and industrial facilities are closed.

“Ultimately, people staying at home will lead to less natural gas demand in the commercial and industrial sectors. As we are in shoulder season, demand is already low, as it’s too warm for residential heating but too cold for power burn demand.”

While the “real impact on demand” from the contagion is not yet clear, a sharp drop-off in the rig count has materialized already, according to Enverus estimates. Between March 17 and this past Sunday, the firm’s Lower 48 rig count fell from 802 to 719, an indication that “operators’ less ambitious plans are already making headway.”

Baker Hughes Co. similarly reported a 44-rig decline in its latest U.S. rig count this past Friday, ranking among the largest weekly drops in domestic drilling activity over the past two decades.

The declining rig numbers have coincided with a spate of announcements in recent weeks from upstream operators planning sharp reductions in spending in the face of headwinds from both Covid-19 and a breakdown in supply cut talks between the Organization of the Petroleum Exporting Countries and its allies.

Schlumberger Ltd., the world’s largest oilfield services operator, plans to reduce capex by around 30% from 2019 and lay off an untold number of employees who work in North American land operations. CEO Olivier Le Peuch had signaled the capex reduction earlier in March. A “rapid reduction” in the rig count is forecast for 2Q2020, which could trough to 2016 levels, Le Peuch said.

Midcon Pipe Work

Most Midwest hubs rallied by double digits Tuesday, suggesting an upstream pipeline constraint was applying some upward pressure on prices in the region. Chicago Citygate picked up 13.0 cents to average $1.575, while Emerson added 14.5 cents to $1.560.

Natural Gas Pipeline Co. of America (NGPL) scheduled a one-day pigging event that was expected to restrict 0.5 Bcf/d of northbound flows through its Amarillo Mainline Wednesday, according to Genscape analyst Matthew McDowell. This is the first in a series of pigging operations scheduled for April, the analyst said.

“This maintenance event will restrict 44% of contracted flow through Station 104 in Barton County, KS. Lasting for one day only, the calculated max throughput for this event would be 392 MMcf/d, a reduction of 501 MMcf/d when compared to the rolling 30-day average of 893 MMcf/d.

“Prior events restricting Amarillo Mainline flow have seen NGPL Midcontinent basis fluctuate wildly in response to competition over available mainline capacity with Permian molecules, but muted demand could dampen a price response. Mild weather in the forecast and potential demand destruction due to Covid-19 stay-at-home orders in NGPL’s market zone support this possibility.”

Midcontinent prices exhibited signs of impact from the constraint Tuesday, with NGPL Midcontinent tumbling 23.5 cents to average 98.0 cents. El Paso Anadarko slid 14.0 cents to 99.5 cents. West Texas prices also saw discounts, including at Waha, which fell 5.5 cents to 21.5 cents.

Meanwhile, planned maintenance on the Rockies Express Pipeline (REX) was restricting 217 MMcf/d of westbound flows in Ohio Tuesday, according to Genscape analyst Anthony Ferrara. The work at the Columbus compressor was limiting flows through REX’s segment 380 to 2,617 MMcf/d, down from a prior two-week average of 2,755 MMcf/d and a two-week max of 2,834 MMcf/d, the analyst said.

The REX constraint didn’t spoil the fun for Appalachia sellers Tuesday. Rallying in step with Midwest hubs, Dominion South picked up 13.5 cents to $1.390.

Cash prices have strengthened overall through the first two trading days of the week, but a mild forecast -- even by shoulder-season standards -- implies limited near-term upside.

With weather over the next 10 days unlikely to provide much support, this could “compound bearish weight on demand” exerted by Covid-19, according to Genscape.

The firm’s meteorologists as of Tuesday were calling for Lower 48 HDD to begin “declining/warming at a fairly sharp rate” later this week.

“By the weekend, HDD are forecast to fall to just 3 HDD, about 60% warmer than seasonal,” Genscape senior natural gas analyst Rick Margolin said. “Some of the bearishness of national weather may be modestly offset by abnormally hot weather from Texas to the Georgia Atlantic coast triggering cooling loads, but not enough to stem a total decline in aggregate demand.”