Doubts over the durability of late October cold, combined with the prospect of another triple-digit weekly inventory build, saw natural gas futures fail to hang onto early gains Wednesday. After probing as high as $2.384/MMBtu early in the session, the November Nymex contract slid throughout the day to eventually settle at $2.303, off 3.6 cents; December dropped 3.7 cents to $2.495.
In the spot market, cold moving through the Midwest and Northeast this week lifted prices in those regions; the NGI Spot Gas National Avg. climbed 11.0 cents to $2.055.
November ran into “some solid technical resistance” at the $2.375-2.380 level early Wednesday, according to Bespoke Weather Services.
Prices “then continued lower as the midday weather models showed less potential for strong, lasting cold,” the forecaster said. “The fundamental state, while marginally tighter the last couple of days, remains very weak, and without cold, easily still supports downside risk to current prices. It is up to cold to support the market.”
The market will need to see a “solidly cold” pattern for late October into early November to sustain a rally, according to Bespoke. That’s still possible, as Wednesday’s data “could simply be a blip” preceding colder trends in subsequent data.
“Our lean is to the colder side into the first week of November, but then turning back milder based on what we see from the tropical forcing patterns,” the forecaster said.
NatGasWeather noted a significant gap in heating demand expectations between the American Global Forecast System and the warmer European model.
“A major pattern change is still expected Oct. 23-25 as stronger cold shots push across the Canadian border and deep into the U.S.,” NatGasWeather said. “This is where major weather model differences continue, with the GFS much colder than the European model with several of the cold shots.
“We expect cold to linger into the first couple days of November, but it could fade shortly after. We expect the onus is on cold proving it and lasting if any sustained weather rally is to be expected.”
Meanwhile, estimates have been pointing to a triple-digit build from Thursday’s Energy Information Administration (EIA) weekly storage report, which would mark the third 100 Bcf-plus injection in the past four weeks. In keeping with a long-running theme this refill season, an injection in the triple digits would also comfortably top both the year-ago 82 Bcf build and the five-year average 81 Bcf for the week.
A Bloomberg survey produced a median 108 Bcf estimate for this week’s report, which covers the period ended Oct. 11. As of Wednesday, estimates ranged from 101 Bcf up to 117 Bcf.
Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at 108 Bcf. NGI’s model predicted an injection of 115 Bcf.
Spot prices strengthened throughout the Midwest and Northeast Wednesday with cooler temperatures moving into those regions. Chicago Citygate added 14.5 cents to average $2.110.
“A weather system with showers and cooling will sweep across the Midwest and Northeast the next few days with lows of 30s to 40s,” NatGasWeather said. “Texas and the southern U.S. will be mostly comfortable but also with areas of showers, with highs of upper 60s to lower 80s, although locally hotter over the Southwest, South Texas and Florida.
“The West will be mostly comfortable besides the cooler Northwest. Overall, decent demand the next few days, then lighter this weekend.”
In California, prices were mixed. Malin climbed 21.5 cents to $2.075. Southern California prices showed few signs of being impacted by a maintenance-related restriction on the El Paso Natural Gas (EPNG) system. SoCal Border Avg. dropped 16.5 cents to $2.460.
Maintenance Thursday could disrupt about 100 MMcf/d of southbound flows on EPNG’s Havasu Crossover in western Arizona, according to Genscape analyst Joe Bernardi.
Bernardi said flows through this area are reflected in the volumes reported at the Dutch Flats station on this line, which connects EPNG’s North and South mainlines. The line is bidirectional but almost always flows north-to-south near full capacity, according to the analyst.
“This maintenance will see operational capacity drop to 509 MMcf/d compared to the base capacity of 617 MMcf/d, so the same roughly 110 MMcf/d impact is expected for flows,” Bernardi said. “This meter has also been subject to other planned maintenance that started earlier this week, reducing operating capacity to a less-restrictive 551 MMcf/d on Tuesday and to 581 MMcf/d” for Wednesday.
“Past maintenance events here have corresponded with upward movements in SoCal Border basis price, although usually only when the capacity reductions are more severe than this one.”
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