Natural gas futures tumbled further on Tuesday as traders looked past robust demand for U.S. exports and fixated on exceptionally light domestic weather demand expectations heading into December. The January Nymex contract dropped 28.7 cents day/day and settled at $4.567/MMBtu. February fell 26.2 cents to $4.506.

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At A Glance:

  • Forecasters call for warm December
  • Production near 2021 highs
  • Cash prices sputter in East

The January contract, in its debut as the prompt month on Monday, plunged 62.3 cents.

NGI’s Spot Gas National Avg. shed 49.0 cents to $4.465.

“The likelihood of further declines later this week” for futures “remains elevated as daily demand plunges and the spot market weakens,” said EBW Analytics Group senior analyst Eli Rubin. The “dwindling of high-leverage winter price spike risks is causing natural gas prices to nosedive.”

NatGasWeather said Tuesday forecasts pointed to increasing warmth expectations for the first half of December, with milder adjustments spread across the 15-day projection period.

“The overnight data remained exceptionally bearish the rest of this work week and again Dec. 9-15 as most of the U.S. experiences temperatures 10-30 degrees warmer than normal,” the firm said. “…What also makes the overnight data bearish is that the end of the 15-day forecast was again quite warm with the upper pattern, suggesting bearish weather headwinds in the 10-15 day period will carry over to forecast days 16-20.”

Widespread cold, the forecaster added, may not arrive in the Lower 48 until the final week of December.

At the same time, production hovered around 97 Bcf/d over the past week, according to Bloomberg estimates, putting output on par with 2021 highs.

Meanwhile, the Omicron coronavirus variant’s shadow “is growing darker” after Moderna Inc.’s chief executive said existing vaccines could prove less effective combating it than previous strains of the virus, said Rystad Energy analyst Louise Dickson.

Energy markets traders “will also wait for hints from other vaccine makers, and if more voices reinforce Moderna’s efficacy concerns, further price downside can be expected,” Dickson said, noting that oil futures also fell Tuesday.

Should the new variant necessitate business and travel restrictions, they could slow economic activity and impact energy needs. Already, for example, the United States imposed limits on visitors from southern Africa, while Australia extended earlier restrictions and Japan banned most foreign visitors, Dickson noted.

Potential Catalysts

For all the near-term headwinds, U.S. exports of liquefied natural gas (LNG) are hanging near record levels and reflect tight global balances. NGI estimates pegged LNG feed gas volumes above 12 Bcf over several recent days, as U.S. export destinations in Asia and Europe continue to clamor for supplies ahead of the winter months.

Demand is expected to remain elevated through the winter, Rubin of EBW said.

Domestically, despite the bearish forecasts, the Lower 48 is nevertheless crawling into winter and utilities are beginning to withdraw gas from storage to power furnaces and meet heating needs.

For the next Energy Information Administration (EIA) storage report, analysts are expecting the second pull of the season – and a much larger one.

NGI’s model predicted a net 58 Bcf withdrawal for the week ended Nov. 26. Early Bloomberg survey results landed at a median pull of 58 Bcf.

The estimates compared with a five-year average draw of 31 Bcf and year-earlier pull of 4 Bcf for the comparable period. EIA is slated to release the latest storage report on Thursday.

The agency posted a withdrawal of 21 Bcf pull for the week ended Nov. 19. That left working gas in storage at 3,623 Bcf, 320 Bcf below the year-earlier level and 58 Bcf below the five-year average.

Cash Prices Cascade

Spot prices sank on Tuesday as temperatures warmed and prices dropped across the Midwest and East.

NatGasWeather said while cool weather lingered in the Great Lakes and Northeast Tuesday, most of the Lower 48 enjoyed mild high temperatures in the 50s to 70s, generating relatively little heating need.

By Thursday, the firm said, “almost the entire” United States is to be warmer than normal “as upper high pressure rules for very light national demand.”

EBW’s Rubin said space heating demand “is fading quickly, with widespread warm anomalies forecast to blanket the Lower 48.” Looking to the rest of the week, he said, “the first three days of December stand out with a startling 22” heating-degree days “and 12.7 Bcf/d of below-normal demand.”

Against that backdrop, prices plunged in the Midwest, with Chicago Citygate down 58.5 cents day/day to average $4.140 and Defiance off 57.0 cents to $4.080.

In the East, Cove Point plunged $1.250 to $4.650, while Columbia Gas lost 49.5 cents to $4.015 and Millennium East Pool dropped 55.0 cents to $3.990.

Into mid-December, NatGasWeather’s outlook called for continued above-normal warmth, with highs of 50s-70s across the western, central and southern United States. While a cold front is forecast to blow into the East next week, it is expected to give way after a few days, as another round of high pressure ushers in above-average highs.