Even with a brief cold blast sneaking back into the December forecast, natural gas futures moved lower again on Tuesday. With a key spread flipping to negative, traders appeared to have closed the book on winter with weeks to go before the first verse of Auld Lang Syne is sung. 

Markets

The January Nymex contract settled at $2.399, off seventh-tenths of a cent day/day. February fell 1.1 cents to $2.422.

Spot gas prices were mixed Tuesday but most market hubs posted small changes day to day. NGI’s Spot Gas National Avg. slipped 2.0 cents to $2.385.

[On March 1, 2021, NGI added three new points to its Forward Look data service, including an Agua Dulce point. Interested in adding affordable, robust natural gas forward curves to your business resources? Start a trial here.]

The price action in the cash market may be temporary as milder weather is on tap for later this week, with potential downside possibly spilling over to the Nymex futures curve. Mobius Risk Group said even with little risk of having “too much gas” at the end of winter, the speculative community remained considerably long and traders looking to exit positions could drive prices lower. The latest Commodity Futures Trading Commission data showed the market as of Dec. 1 was 10,000 lots longer than it was the prior week and well above what would be deemed “equilibrium.”

Weather continues to “drive the bus,” according to Mobius, at least until storage inventory numbers show a weather-adjusted tightness which cannot be ignored, “or until the blow torch of a winter eases up.”

NatGasWeather said the overnight and latest midday weather data failed to trend meaningfully colder for the coming 15 days, with only a brief period Dec. 14-15 being close to cold enough to satisfy. What continues to make the coming pattern “emphatically bearish,” according to the forecaster, is the back end of the 15-day forecast remains solidly warmer than normal over vast stretches of the United States.

“…We think there’s potential for more ominous cold to arrive beginning around Dec. 24-27, but that wouldn’t show up in the 15-16-day weather maps for another few days,” NatGasWeather said.

Traders didn’t appear convinced of any potential cold for the remainder of the year, and with the storage surplus still intact, the so-called “widow-maker” officially flipped. March Nymex futures settled at $2.419, nearly a penny below the April contract.

From a supply and demand perspective, daily data since Dec. 2 has become increasingly tight on a weather-adjusted basis, Mobius said, “but of course overwhelmed when weather is added back into the equation.” Liquefied natural gas (LNG) exports topped 11 Bcf/d over the weekend and remained there on Tuesday.

Production, meanwhile, began December in lackluster fashion. However, Energy Aspects said despite the slow start, it expects a sequential decline of slightly under 1.0 bcf/d month/month in December.

Notably, output from South Texas has continued to grow following November’s surge, likely because of completions of gassier wells on strong in-basin prices as well as improved Henry Hub economics year/year, Energy Aspects said. Other basins continue to post sequential output growth as year/year deficits continue to shrink. 

Gulf of Mexico receipts matched a six-month high of 2.5 Bcf/d on Nov. 30, while Bakken Shale flows of 1.95 Bcf/d were less than 5% lower year/year. Although the Permian Highway Pipeline (PHP)is fully operational, Energy Aspects said it had not seen a rise in Permian production. However, it expects PHP to translate into higher output in the long run. In the short run, it may capture more gas that could have been lost to flaring.

Market observers also were keeping an eye on European storage. Mobius said European storage has started to fall rapidly despite a less-than-bullish start to the winter. The delta to last year had opened up and approached 300 Bcf, with Germany leading the way, aided by France and Austria.

“Downstream pricing in Europe (Title Transfer Facility) and Asia (Japan Korea Marker) has remained stout despite the collapse at Henry Hub,” Mobius said.

The Schork Group said from a technical standpoint, if the January Nymex contract drops below $2.367, it would look toward $2.334 as a second support level and $2.290 for a third support point. Strength above $2.427 opens the door to the $2.463 second level of resistance before prices were expected to hold at $2.511.

Quiet Cash

Spot gas markets were rather quiet on Tuesday as the East Coast was expected to remain chilly another day as the recent cold blast exited the region. Most of the rest of the country was forecast to be warmer than normal, according to NatGasWeather, with highs of 40s to 70s.

Some cooler weather was in store late in the week for the West, but the central part of the country likely won’t experience the chillier air until the weekend, when demand is typically lower. The East, however, may see a modest bump in demand early next week as the system moves into the region. However, “the amount of cold with these systems simply isn’t as impressive as the data had once shown,” NatGasWeather said.

Despite few big price changes in California, SoCal Citygate next-day gas shot up 51.5 cents to $4.695. Other pricing hubs in the state posted mostly small changes. Rockies prices slipped slightly day/day, while prices across Texas were mixed but generally steady.

Minor increases were seen in the Midwest, where Chicago Citygate picked up 2.0 cents to $2.215. In Louisiana, Henry Hub fell 4.5 cents to $2.360.Steepers losses were seen farther east, where Transco Zone 5 spot gas plunged 21.0 cents to $2.475. In the Northeast, Algonquin Citygate was down 34.0 cents to $2.645, and Transco Zone 6 non-NY was down 12.5 cents to $2.255.