Despite robust export demand, bearish weather patterns and increased production weighed down natural gas futures on Monday.

Markets

The December Nymex contract dropped 29.8 cents day/day and settled at $2.697/MMBtu to start the trading week. January fell 25.8 cents to $2.864.

NGI’s Spot Gas National Avg. rose 3.0 cents to $2.630, as demand in the Northeast offset comfortable temperatures that spread across much of the nation’s southern half.

Looking further out, weather data trended bearish over the weekend. The European model lost seven heating degree days (HDD) and the domestic forecast shed 17 HDDs, “with both seeing little cold air into the northern U.S. for late November,” NatGasWeather said.

The forecaster sees modest demand on some days this month. “It’s just the amount and coverage of subfreezing air into the northern U.S.” beginning Thursday through Nov. 30 “is minimal. What makes the pattern emphatically bearish is the weekend data held a warmer-than-normal pattern for most of the U.S. Nov. 25-30.”

NatGasWeather also noted that Lower 48 production increased from about 86 Bcf to 89 Bcf over the past few days.

EBW Analytics Group said even if recent forecasts hold, the long-standing surplus in Lower 48 gas stocks is likely to shrink in December, as winter weather conditions settle in domestically and as demand for liquefied natural gas (LNG) gathers more momentum. LNG has hovered above 10 Bcf for several days in November – around record levels — pointing to strong export demand and the likelihood of tighter balances over the winter months, the analysts said.

“The storage surplus that has persisted all year long is likely to quickly dwindle,” EBW said.

The question is, will the weather turn cold enough in December and beyond to drive down stocks to boost gas prices late this year and into 2021?

The U.S. Energy Information Administration (EIA) on Friday reported an 8 Bcf injection into storage for the week ending Nov. 6. Major polls called for a modest withdrawal. The increase for the latest covered week lifted inventories to 3,927 Bcf, up from 3,731 Bcf a year earlier and ahead of the five-year average of 3,751 Bcf.

Analysts are expecting another increase in gas stockpiles for the week ended Nov. 13, followed by withdrawals after that.

Analysts at Tudor, Pickering, Holt & Co. (TPH) issued a preliminary estimate for a 20 Bcf injection. “This week’s build would represent a material departure from norms of minus 46 Bcf,” the TPH analysts said.

While LNG “keeps hitting new record levels,” production has climbed back to near 90 Bcf/d on rebounding Northeast volumes, according to TPH estimates.

“With the soft start to winter, we expect inventories to exit the year above the five-year average, meaning it will likely take a brutally cold January/February to put any sort of scarcity premium into gas,” the analysts said.

The trajectory of the pandemic also hangs as a threat if it continues to intensify over the winter and result in widespread economic restrictions that minimize energy demand.

The United States reported more than one million cases in the past week, a record surge, with infection rates on the rise in dozens of states and across every region of the country, according to Johns Hopkins University data.

Moderna Inc. said Monday early test results showed its vaccine to be highly effective in protecting people from the virus. Pfizer Inc. reported similar results for its vaccine last week, and federal officials are hopeful they could begin inoculating Americans by early in 2021. Still, that may not be soon enough to counter the winter wave of cases, as officials have cautioned it likely would take several months to distribute the vaccine to enough people to end the pandemic.

“Vaccine news, which is rightly received as positive in the long term, does not mitigate the risk” that the United States and other major economies “will likely have to return to some form of lockdown in the very short term,” said Rystad Energy analyst Louise Dickson.

Spot Prices Sputter

Spot gas prices ticked up Monday as strength in the Northeast offset benign weather elsewhere that minimized heating needs across much of the country.

After light demand to start the week, demand will increase Tuesday and Wednesday “as a weather system and associated cold shot sweeps across the Midwest and Northeast with lows of 10s to 30s,” NatGasWeather said. But the southern half of the Lower 48 will remain “comfortable with highs of 60s to lower 80s, near ideal for this time of the year.”

Additionally, the forecaster said, “national demand will swing back to lighter than normal late this week as high pressure and warmer conditions rebound across the Great Lakes and Northeast, while still very nice most elsewhere besides the far West.”

Against that backdrop, prices were down in most regions but rose in Appalachia and surged in the Northeast, where Algonquin Citygate spiked $1.930 day/day to an average $4.210, and Tenn Zone 6 200L gained $1.930 to $4.415.

Elsewhere, Chicago Citygate lost 22.5 cents to $2.450, while El Paso Permian shed 16.0 cents to $2.315 and Opal lost 36.0 cents to $2.760.Out West, Malin fell 36.5 cents to $2.840.