The volatility in the broader economy continued to make its presence felt in the natural gas futures market Friday, with prices ultimately sliding amid uncertainty over the full impact of the coronavirus. After trading as high as $1.700/MMBtu and as low as $1.574, the April Nymex contract went on to settle at $1.604, down 5.0 cents on the day.
In the spot market, gains in the Northeast and discounts in the Rockies and California left NGI’s Spot Gas National Avg. up half a penny to $1.495.
Coming off multiple tests of support near $1.60 for the front month, analysts at EBW Analytics Group said they’re looking for this support level to break during the upcoming week “at the latest.”
The driving question remains just how much gas demand the coronavirus knocks out this spring, they said, highlighting “stores and factories closing, California declaring a statewide lock-down, and more restrictive measures being adopted by a growing number of states.”
Put it all together and “the resulting loss in demand could be startling, sending near-term gas prices down sharply over the next few weeks,” according to EBW.
Bespoke Weather Services noted that natural gas price action Friday — which saw the front month rally early before selling off sharply as the day progressed — “simply followed the directional move of other markets.”
This “may well continue regardless of actual fundamentals data for a while, although the next few weeks should bring more attention to data as we see how much demand destruction” occurs from widespread shutdowns to contain the spread of the coronavirus, Bespoke said. “Until then, we’d like to offer a reasoned thought regarding what near term price action is likely to be, but that is very difficult unless you can predict the next turn in equities, etc.
“Long-term, we see upside risks, assuming we do clear all the economic hurdles ahead of us, or at least mitigate them somewhat, later this year.”
Meanwhile, the Energy Information Administration (EIA) on Thursday reported a larger-than-expected 9 Bcf weekly withdrawal from U.S. gas stocks. The 9 Bcf withdrawal falls well short of both the 91 Bcf withdrawal EIA recorded for the year-ago period and the five-year average pull of 63 Bcf.
Total Lower 48 working gas in underground storage stood at 2,034 Bcf as of March 13, 878 Bcf (76.0%) above year-ago levels and 281 Bcf (16.0%) higher than the five-year average, according to EIA.
Looking at the latest storage data, analysts at Tudor, Pickering, Holt & Co. (TPH) said the inventory surplus to historical norms is “getting ugly” when viewed by region.
“As we get into the tail end of withdrawal season, we’re checking back in on regional storage where the Midwest looks pretty ugly at plus 31% versus the five-year average and across the Great Lakes at the Dawn hub things are worse, with inventories at plus 45%,” the TPH analysts said. “The East region is similarly challenged at plus 32%, and the Mountain is the only one below the five-year at minus 12%.”
Genscape Inc. viewed the withdrawal as neutral versus the five-year average when compared to degree days and normal seasonality.
Reacting to an expected shift to colder temperatures over the weekend, deals for weekend and Monday delivery in the Northeast and Appalachia posted strong gains Friday. Algonquin Citygate jumped 25.5 cents to $1.605, while Texas Eastern M-2, 30 Receipt rallied 17.5 cents to $1.365.
NatGasWeather on Friday was calling for a strong cold shot to begin moving through the central United States, bringing high temperatures in the teens to 30s.
Following “very warm” temperatures for the South and along the East Coast ahead of this system on Friday, the forecaster called for demand to “surge” over the weekend “as cold air over the central U.S. spreads across the Great Lakes, Ohio Valley and Northeast.”
A planned inspection on the L2000 import line was expected to potentially cut roughly 200 MMcf/d of imports into the Southern California Gas system starting Saturday, with the work expected to take a week, according to Genscape analyst Joe Bernardi.
The maintenance affects both the Blythe sub-zone and the Southern Zone, Bernardi said. “Of these, the Southern Zone capacity reduction has the most potential to cut flows. That reduction will cut firm capacity to 566 MMcfr/d, over 250 MMcf/d below the recent 30-day average of around 830 MMcf/d.
“However, while flows have been coming in around 830 MMcf/d, firm operating capacity has been about 70 MMcf/d below that, as this zone often flows above posted limits due to the presence of local demand in the Southern Zone.”
Genscape forecasts show temperatures dropping to well below seasonal norms during this event, with the coldest weather expected to arrive by this Thursday, Bernardi said.
Farther upstream, West Texas prices took a beating Friday after having climbed throughout the week. Waha plunged 54.0 cents to average 44.5 cents, while El Paso Permian tumbled 58.0 cents to 44.5 cents.
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