With weather models teasing the prospect of some cooler temperatures reaching the eastern Lower 48 next month, natural gas futures pared their losses in early trading Friday. After falling 12.0 cents in the previous session, the December Nymex contract was up 7.3 cents to $2.665/MMbtu at around 8:45 a.m. ET.
In terms of projected demand, the latest forecast early Friday was largely unchanged day/day, according to Bespoke Weather Services.
“However, there is a little more of a bullish picture at the very end of the modeling, as there is more of a tendency to focus upper level ridging in the West, leaving room for some weak cooler troughing into the East,” Bespoke said. “…It is unclear if this change holds, or amounts to anything other than brief minor variability down the road, as the overall background state in our view still favors a warm setup into at least the first third of December.
“Nonetheless, it does make today’s midday runs more interesting to monitor.”
Meanwhile, looking at this week’s storage report, mild weather was the culprit behind the bearish print, overwhelming an otherwise tight supply/demand balance, according to analysts.
The Energy Information Administration (EIA) on Thursday reported a 31 Bcf injection into U.S. natural gas storage for the week ending Nov. 13, larger than estimates and bearish versus historical norms. Last year, EIA recorded a 66 Bcf withdrawal for the period, and the five-year average is a pull of 24 Bcf.
The build for the Nov. 13 week lifted inventories to 3,958 Bcf, above the year-earlier level of 3,665 Bcf and above the five-year average of 3,727 Bcf.
“Compared to degree days and normal seasonality, this week’s injection appears tight by 3.7 Bcf/d versus the prior five-year average,” analysts at Genscape Inc. said of the EIA report. “This week’s report continues the trend of tight weather-adjusted storage reports since Sept. 17.”
However, weather was “extremely bearish” during the report period, falling 57 gas-weighted heating degree days shy of the five-year average, according to the firm. This week’s EIA report shows “that very bearish weather can easily outweigh a bullish weather-adjusted fundamental backdrop, especially in the winter.”
Analysts at Tudor, Pickering, Holt & Co. (TPH) estimated a loss of around 8 Bcf/d in residential/commercial demand due to the below-normal degree day totals for the EIA report period.
“However, as we try to look past a horrific week for gas pricing, producers aren’t doing themselves any favors as pipe flows show production up 2.1 Bcf/d week/week to 90.9 Bcf/d, the highest weekly level since April, compounded by an incremental 0.8 Bcf/d of imports from Canada,” the TPH analysts said.
Still, at current price levels for the winter contracts the analysts “expect a meaningful rebound if some blue starts finding its way onto the weather maps.”
December crude oil futures were up 24 cents to $41.98/bbl at around 8:45 a.m. ET, while December RBOB gasoline was up about 1.2 cents to $1.1745/gal.
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