• Futures tumbled a second consecutive day as weather models leaned increasingly bearish
  • LNG feed gas volumes remained strong
  • Expectations mounted for the first storage withdrawal of the season

Natural gas futures tumbled a second consecutive day as weather models leaned increasingly bearish for much of November, offsetting continued liquefied natural gas (LNG) strength and anticipation for the first withdrawal from storage of the season. Election Day uncertainty may also have sidelined some traders.

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The December Nymex contract fell 18.5 cents day/day and settled at $3.059/MMBtu on Tuesday. The prompt month lost 11.0 cents a day earlier. January shed 18.0 cents to $3.195.

Spot gas prices also declined as comfortable temperatures settled in across most of the country. NGI’s Spot Gas National Avg. declined 20.0 cents to $2.625.

In fact, the already challenging weather outlook grew increasingly discouraging for gas prices, forecasters said Tuesday.

“Warmer-than-normal temperatures will spread across most of the country for the rest of the week with comfortable highs of 50s to 80s,” NatGasWeather said. “Conditions will be locally cooler across the Northwest and hotter across the Southwest, but overall a rather light demand pattern for early November.”

While colder air is expected to return to the Plains and parts of the Mountain West this weekend and early next week, the shift is expected to be far less harsh than forecasted only a few days earlier.

“The overnight data yet again showed less cold air into” the central United States “as upper high pressure over the East effectively blocks it to keep highs of 60s to 80s going over much of the southern and eastern United States for light demand,” NatGasWeather said. “We continue to expect bearish weather headwinds will continue until the eastern half of the country sees much colder air, with the next opportunity not until the latter part of November.”

Weather data early Tuesday trended further warmer with both the domestic and European models losing about 10 heating degree days (HDD), the forecaster said. Both models now predict national HDDs will be more than 60 warmer than normal for the coming 15-day period.

Analysts also said the presidential election inevitably cast some of the shadow over natural gas markets Tuesday, given Democrat Joseph R. Biden Jr. led in most national polls and presented the potential for substantial change to the sector.

President Trump’s energy policy has been defined by deregulation and a corporate tax cut. Biden has vowed to bump up the corporate tax rate and introduce policies aimed at gradually transitioning domestic energy production away from fossil fuels and toward renewable sources.

“I do not think the pivot would be something that would happen quickly, but Biden would put his people in key positions that would tend to hinder expansion of fossil fuel production and infrastructure development,” said energy futures director Robert Yawger of Mizuho Securities USA LLC. “He would tend to scale back drilling on public land, and he would be less inclined to approve new pipelines.”

LNG feed gas volumes, meanwhile, remained strong as they have for several days following Hurricane Zeta last week. LNG levels hovered near 10 Bcf Tuesday, indicating mounting export demand and pointing to tighter balances this winter.

During a third quarter earnings call Tuesday, Williams executives said they were optimistic about continued strong LNG demand. “We have confidence that producers see this as an attractive market and will be able to respond very effectively to the increasing call on gas supplies, particularly in the very best of the Marcellus, Utica and Haynesville shales…which we are so fortunate to serve,” CEO Alan Armstrong told analysts.

Three consecutive Energy Information Administration (EIA) storage reports in October produced smaller-than-expected injections, the last of which was largely attributed to the bump in LNG feed gas deliveries. Observers increasingly expect a withdrawal with the agency’s Thursday report for the week ended Oct. 30. EIA last week reported a 29 Bcf injection. Total working gas in storage as of Oct. 23 rose to 3,955 Bcf, 289 Bcf above the five-year average, according to EIA.

Bespoke Weather Services and Tudor, Pickering, Holt & Co. analysts have projected withdrawals for the latest week. If that proves to be the case, withdrawals would have started two weeks ahead of normal and could help to burn through the current inventory surplus.

Production, meanwhile, held steady Tuesday following shut-ins a week earlier in anticipation of Zeta. The hurricane blew into the Gulf of Mexico (GOM) but exited without causing widespread issues for oil and gas producers. Roughly 45% of the gas produced in the GOM was taken offline ahead of the Category 2 storm. As of midday Tuesday, that figure had declined to 10.3%, the Bureau of Safety and Environmental Enforcement said.

New waves of the coronavirus in the Lower 48 and overseas could impact production of associated gas in coming months and, by extension, further tighten the U.S. gas market this winter. Governments in France, Germany, the UK and elsewhere in Europe have recently announced new restrictions to slow the spread of the virus. These limitations could crimp gasoline and jet fuel demand, hampering oil prices and keeping already low oil and associated production in check.

“As the onshore industry grapples with low prices and an uncertain demand picture…total Lower 48 volumes are anticipated to hold flat” the rest of 2020, Rystad Energy analysts said.

Cash Prices

Spot gas prices declined Tuesday alongside rising temperatures.

Despite longer-term supply/demand fundamentals that could support gas prices, “so far this week, weather patterns trending further warmer have gained the upper hand,” NatGasWeather said.

Across the nation’s midsection and parts of the East, where temperatures were mild and expected to remain so for several days, prices dropped.

Chicago Citygate prices fell 20.5 cents day/day to an average $2.640, while OGT lost 17.0  cents to $2.545.

In the Northeast, Algonquin Citygate plunged $1.720 to $2.150.

Heat, however, has persisted in parts of the southwestern United States and into areas of California, supporting ongoing cooling demand into the fall season.

Out West, SoCal Citygate prices jumped 75.5 cents to $5.850, and Kern Delivery spiked 96.5 cents to $4.845.

In West Texas, prices broadly rebounded after day-earlier declines. El Paso Permian climbed 80.0 cents to $2.385.