Natural gas traders on Thursday couldn’t be convinced to go long despite the extended Christmas holiday weekend, especially with the weather data turning milder with every run of the latest models. The January Nymex gas futures contract settled Christmas Eve at $2.518, down 9.0 cents. February slipped 7.6 cents to $2.512.
Spot gas prices, which were for gas delivered through Monday, were mostly lower amid the mostly light holiday weekend demand outlook. However, a chilly, wet forecast in the Northeast sparked big gains there. NGI’s Spot Gas National Avg. ultimately climbed 9.0 cents to $2.780.
Still digesting the most recent storage data, traders appeared cautious early in Thursday’s Nymex futures session. January prices were slightly lower early in the day but generally stayed within a few cents of Wednesday’s close. However, with yet another warmer turn in the weather models, prices moved decidedly lower ahead of the Christmas Day holiday.
“There’s still several days left to go in the latest midday Global Forecast System run, but it’s already lost 14 heating degree days [HDD] for the first 11 days of the new run,” NatGasWeather said. Now, both the American and European models “aren’t quite cold enough overall for the next 15 days.”
Any lost demand may keep storage inventories in check in the coming weeks. On Thursday, the few traders that hadn’t quite punched the clock were still digesting the latest storage inventory report. The Energy Information Administration (EIA) reported Wednesday that inventories fell 152 Bcf for the week ending Dec. 18, a pull that came in well short of the near 160 Bcf draw that the market had been expecting.
Mobius Risk Group said the published withdrawal of 152 Bcf shows how fragile a market with a short-term memory and a long net speculative position can be. The inventory reduction was 5 Bcf more than the same week last year despite warmer temperatures, and importantly, South Central inventory posted the largest surplus reduction of all EIA regions.
“This mattered little to a market which had begun to consider the possibility of a 160-170 Bcf-like withdrawal in the days leading up to the number,” Mobius said.
Pausing for a moment and considering what the latest EIA figure implies for the remainder of withdrawal season is an important sanity check, according to Mobius. It’s also a valuable exercise for the producing and consuming community, the firm said.
For producers, the fear that a price response like Wednesday’s can generate “feels like being locked outside on a snowy winter day with no shoes, no coat and no one home to unlock the door.” Consumers, on the other hand, may feel “cozily settled in front of the fire with little concern of what’s happening outside, and the perception that cheap fuel is as reliable as the sun rising in the East and setting in the West,” according to Mobius.
The firm said that extrapolating the latest EIA figure to the remainder of the withdrawal season is not plausible. Instead, the remaining 14 weeks in the withdrawal season could average 188 per the 30-year normal.
“Of course, there is a shape to the HDD profile which could become very relevant in early 2021, but simplistically there is no reason to believe the average weekly withdrawal will be less than 150 Bcf based on Wednesday’s number,” Mobius said. “This linear caveman approach would imply end-of-March inventory will be just under 1.5 Tcf, and yet we are priced like 2 Tcf or above is the most likely path.”
[NGI’s natural gas price indexes have included trade data from both price reporters and the Intercontinental Exchange (ICE) since 2008]
With the last several weather model runs not offering much for bulls to hang their parkas on, sending prices lower ahead of Christmas was to be expected. However, EBW Analytics Group said increasingly large draws are likely every week, which would rapidly erode the storage surplus. Support for the January contract could be tested at $2.45 or below, “driving the forward curve down to a level far below fair value.”
Similarly, liquefied natural gas (LNG) exports may similarly strengthen relative to the past week. EBW said the seven-day moving average for LNG feed gas demand has slipped to only 10.9 Bcf/d because of Corpus Christi Train 3 appearing to cycle down as part of the commissioning process, but the terminal is likely to be back to full capacity by early next year. On Friday, feed gas demand was at around 11 Bcf, according to NGI data.
“Still, there are conflicting reports of potential cargo cancellations amid a lack of LNG charter vessels, with the potential for demand to slip back toward recent levels,” EBW said. “Nonetheless, LNG feed gas demand is likely to average 2-3 Bcf/d tighter than January 2020 levels of 8.5 Bcf/d, increasing demand by close to 75 Bcf year/year.”
‘Not So Jolly’
Although most of the Lower 48 was a sea of Christmas red, Northeast markets rebounded sharply on Thursday as the region was being pounded by a wet winter weather system that was set to linger through the holiday.
The National Weather Service (NWS) said a robust surface low pressure system was forecast to strengthen over the Mid-Atlantic on Thursday and dash northward into southeast Canada by Christmas morning. Along and ahead of an associated cold front, “not-so-jolly” weather will be found up and down the East Coast.
“Plentiful moisture from the Gulf of Mexico is forecast to stream in and cause widespread heavy rain and thunderstorms,” NWS said. “A combination of factors will lead to flooding and flash flooding with this rain.”
On the backside of the strong cold front, a white Christmas will be in store for much of the Great Lakes region and as far south as the southern Appalachians, according to the forecaster. Heavy snow of several inches was to continue late Thursday in the Upper Peninsula of Michigan and western Lower Michigan. Lake-enhanced snow potentially accumulating over a foot is also likely near Lake Erie, NWS said, with snowfall amounts of 4 to 8 inches expanding south into eastern portions of the Ohio Valley and into the central/southern Appalachians.
“The cold temperatures behind the front could support rapid freezing of any standing water,” the forecaster said. “Not even Florida could escape this strong arctic cold front,” as bitter temperatures were expected to hit the Sunshine State by Christmas.
Farther west, Kingsgate plunged 35.5 cents to $2.205, but the rest of the Rockies posted decreases of around 20.0 cents or less. Prices were mixed in California.
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