Natural gas futures nosedived on Monday on forecasts for benign weather into December and worries about the possible effects of a new coronavirus variant on energy demand.

storage snapshot

At A Glance:

  • EIA’s 41 Bcf injection beats expectations
  • All eyes on production ahead of Freeport
  • Cash prices mixed ahead of cooler weekend

The January Nymex contract, on its opening day as the prompt month, dropped 62.3 cents day/day and settled at $4.854/MMBtu. February fell 59.6 cents to $4.768.

NGI’s Spot Gas National Avg. ticked up 1.0 cent to $4.955, despite price declines in the Rocky Mountains and across the West.

Summer heat that spilled into autumn fueled strong demand this year as gas-fired power plants worked overtime to keep air conditioners running. Freezing winter conditions would ignite heating demand and get furnaces cranking. At the moment, however, outlooks into early next month suggest most of the Lower 48 would hover between weather extremes, leaving consumption of gas relatively modest for this time of year.

Bespoke Weather Services said Monday forecasts took a “decisive shift” warmer, with models moving toward “both a Pacific and Atlantic pattern that is unfavorable for cold air delivery into the U.S. This leaves us with a forecast that is solidly warm this week, with a modest colder shot into the East this weekend into the start of next week, followed by a warmer pattern.”

Conditions for the 15-day outlook were on track to keep gas-weighted degree day totals “easily below normal” overall, according to the firm.

Production estimates topped 97 Bcf early Monday, putting output near the 2021 peak and “taking us relatively close to all-time highs from a couple of years ago,” Bespoke added.

At the same time, the Omicron coronavirus variant threatened to dash hopes of an ongoing global economic recovery that has, to date, helped drive demand for energy broadly and U.S. exports of liquefied natural gas (LNG) specifically. New travel restrictions to slow spread of the new variant could rattle confidence, interrupt economic activity and impact energy needs. The United States put new limits on travelers from southern Africa – where the Omicron strain is igniting outbreaks – and Japan was on the cusp Monday of banning nearly all foreign visitors.

The new variant presents “dozens of mutations that could increase transmissibility and potentially evade current vaccines,” EBW Analytics Group senior analyst Eli Rubin said Monday. “Countries have raced to close off borders to attempt to buy time.”

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Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said in a Sunday interview on ABC that the new variant “has the molecular characteristics that would strongly suggest that it would be more transmissible.” However, he said it was too soon to assess whether Omicron may cause more severe illnesses than other forms of the virus.

Omicron had reached at least 13 countries by Monday afternoon.

“If and when — and it’s going to be when — it comes here, hopefully we will be ready for it,” Fauci said. He noted that about 40% of the U.S. population is not fully vaccinated against the coronavirus.

In televised remarks Monday, President Biden called the Omicron variant “a cause for concern, not a cause for panic.”

On Bulls’ Side

Analysts also noted that Monday’s retreat reflected profit taking and a correction of sorts after the December contract rolled off the board on Friday with a 37.9-cent rally. Rubin characterized Friday’s surge as a “settlement-induced price spike” that had little fundamental push behind it.

In bulls’ favor, LNG feed gas volumes hovered close to 2021 highs and around 12 Bcf in recent days, as U.S. export destinations in Asia and Europe continued to call for U.S. supplies heading into the winter months. Positive LNG trends have outshined pleasant weather over several recent trading sessions and remain a likely catalyst for prices heading into December.

Rubin said a record “13.0 Bcf/d remains possible by year-end.”

Looking ahead to this week’s Energy Information Administration (EIA) storage report, meanwhile, NGI’s model predicted a net 58 Bcf withdrawal for the week ended Nov. 26. That would compare bullishly with both the five-year average (31 Bcf) and year-earlier (4 Bcf) withdrawals for the period.

After a slow start to the withdrawal season, “draws are poised to accelerate in the coming weeks,” according to analysts at Tudor, Pickering, Holt & Co. (TPH).

Power generation “remains supportive — well above historical trends as coal generation remains weak versus norms, even though wind generation has been setting new seasonal highs in recent weeks,” the TPH analysts said.

EIA last week printed the season’s first withdrawal from storage, an in-line 21 Bcf pull for the week ended Nov. 19. Total working gas in storage stood at 3,623 Bcf, 320 Bcf below year-earlier levels and 58 Bcf below the five-year average.  

Spot Prices Mixed

Cash prices on Monday were held in check by relatively steep declines across the Rocky Mountains, where comfortable highs in the 60s permeated much of the region. Temperatures eclipsed 70 degrees in Denver during the day.

Cheyenne Hub lost 22.5 cents to average $4.335, while Kingsgate dropped 46.5 cents to $3.280, and Opal shed 30.0 cents to $4.285.

Prices elsewhere in the West were mostly lower as well. In California, PG&E Citygate lost 27.0 cents to $5.510, and SoCal Border Avg. fell 8.5 cents to $4.550.

El Paso S. Mainline/N. Baja in the Southwest gave back 14.5 cents to $4.460.

In contrast, prices rose sharply in the Northeast, with triple-digit gains at several hubs helping to offset the western losses. 

NatGasWeather said cold air would sweep across the Great Lakes and Northeast early this week, delivering chilly highs of 30s to 50s and lows in the teens and 20s.

However, the firm added, “most of the rest of the U.S. will be mild to nice with highs of 50s to 70s for light demand, including a mild and wet system into the Northwest.” Late in the week, “almost the entire U.S. will be warmer versus normal,” with highs in the 40s-50s in northern states and 60s to 70s in the South “for very light national demand.”

Looking to next week, NatGasWeather said, the western, central and southern United States would be “much warmer than normal” with highs of 50s-70s.

Weather systems “with rain, snow and chilly highs of 30s-40s” will track across the Great Lakes and East for near-normal temperatures and demand. Overall, however, the Lower 48 will likely generate “very low national demand.”