Natural gas futures rallied on Tuesday, with overall thin liquidity resulting in a likely overdone response to a temporary decline in production. Despite an unsupportive near-term outlook, the November Nymex gas futures contract jumped 36.7 cents to $6.837/MMBtu. December futures climbed 37.1 cents to $7.174.

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At A Glance:

  • Mixed HDD outlook in weather data
  • Pacific storage pulling hard
  • $55 spot gas on West Coast

Spot gas prices rose almost across the board, outside of some continued weakness in Louisiana. NGI’s Spot Gas National Avg. jumped 44.5 cents to $5.195.

With weather not yet moving the price needle decisively in one direction or the other, traders on Tuesday fixated on top day production data that showed a steep 2.4 Bcf/d drop in output. Wood Mackenzie said the declines were concentrated in the Northeast, Texas, North Louisiana, and the New Mexico portion of the Permian Basin, where there are maintenance or operational issues underway. Most issues, however, are expected to wrap up by Friday.

Northeast production declined by around 1.2 Bcf/d, with the bulk of the decrease occurring in Southwest and Northeast Pennsylvania. West Virginia and Ohio output also fell.

In Southwest Pennsylvania, EQT Corp. and Equitrans Midstream Corp. are each conducting planned pipeline maintenance, while Millennium Pipeline started work on its system in Northeast Pennsylvania. Tennessee Gas Pipeline had a one-day event Tuesday for a pig run. This is in addition to other restrictions on the 300 Line from Station 307 to Station 313 from previous weeks.

In Ohio, Rockies Express Pipeline has maintenance underway at the Columbus compressor station impacting east to west flows through segment 380. Overall Texas production was down around 410 MMcf/d, concentrated in the Permian, with a few maintenance events beginning Tuesday on El Paso Natural Gas.

Permian New Mexico was down roughly 250 MMcf/d, mainly on the Transwestern Pipeline, while North Louisiana production could remain curbed until the middle of the month because of various pipeline work in the region.

Despite the large production drop, there could be more room to probe the downside.

Mizuho Securities USA’s Robert Yawger, director of energy futures, pointed out that the November Nymex contract traded to a $6.310 intraday low on Monday. That was only a half-cent above the three-month low of $6.305.

“Natural gas is threatening to consolidate below the 200-day moving average,” Yawger said.

ICAP Technical Analysis’ Brian Larose pointed out some potential bottoming action in the gas market. He said the 50-week moving average has been a consistent level of support for Henry Hub prices since the rally from $1.432 began. The current 50-week moving average currently sits at $6.229, only a few cents shy of Monday’s close.

“Hold this line on a weekly closing basis, and we could be looking at major bottoming action,” Larose said. “Fail to hold this line,” and the analyst said incremental drops to $5.730 down to $5.325 and “even $4.807-4.712 become possible.”

Watching The Weather

Though the market remains weeks away from any significant widespread cold, there are some indications that fleece jackets and Uggs may be needed soon.

NatGasWeather said the American Global Forecast System model trended chillier with a mid-October cold front, while the European model wasn’t as aggressive advancing colder Canadian air into the Lower 48. It’s not that the European data doesn’t reflect the cooler temperatures arriving in the northern United States, it’s “just not nearly as impressive,” according to the forecaster.

Until then, light to moderate weather-driven demand is likely to continue, NatGasWeather said. Comfortable conditions are set to continue through Friday before a modest increase in demand over the weekend, thanks to the chilly system making its way across the Midwest, Ohio Valley and New England.

The typical shoulder-season lull in demand has fed market bears, which have regained momentum in recent weeks. In addition to the general growth in supply, the lack of widespread heating demand is expected to result in a substantial increase in storage inventories.

Already, the Energy Information Administration has reported back-to-back injections of 103 Bcf. Against the backdrop of rising production and light demand, NatGasWeather said a more than 600 Bcf increase in supply is expected over a six-week period. This raises the end-of-October inventory estimate to 3.5 Tcf, a level not quite “as scary as many were expecting a few months ago.”

Of course, given thin liquidity, the gas market could be jolted higher at any moment, according to the firm. And with bulls taking the November contract sharply higher on Tuesday, “bears are again left frustrated they couldn’t hold momentum,” NatGasWeather said.

Meanwhile, the continued fallout from Russia’s invasion of Ukraine also has led to frequent gyrations in the market. Russia last week reported damage to four lines on its Nord Stream natural gas pipeline system that connects to Europe, adding to supply concerns given already reduced flows of gas to the continent. U.S. and European officials said Russian sabotage was the likely cause of the Nord Stream damage.

Meanwhile, the Kremlin last Friday said it would annex about 20% of Ukraine, while state-run Gazprom PJSC warned it may halt all supplies to Western Europe via Ukraine. The company over the weekend suspended gas deliveries to Italy. Russian threats of nuclear weapons use against Europe and the West also are “leading to nervous trade in many markets,” NatGasWeather said.

Thankfully, cold weather may hold off a bit longer for Europe. DTN forecaster Steve Strum said October looks milder than normal for the continent, with increasing cold risks late in the year across western areas of Europe. “How much cold is seen during December is still uncertain.”

Rallying Cash Prices

Spot gas prices raced higher on Tuesday despite the continuation of mostly mild weather outside of the East Coast. Although a weather system is forecast to begin moving eastward on Wednesday, high temperatures are expected to remain up to 20-25 degrees below normal in some locations.

The National Weather Service (NWS) said an upper-level short-wave trough over the Great Basin is forecast to move southeastward over the Central/Southern Rockies and eastern portions of the Southwest. This should produce some rain across the region before it pushes south and eastward into the Midwest. Temperatures across the Northern Plains and Upper Midwest are expected to plunge late Wednesday behind the front to near or below freezing Thursday morning, NWS forecasters said.

As for prices, Carthage next-day gas averaged at $4.720 for Wednesday’s gas delivery, up 32.5 cents day/day. NGPL S. TX picked up 55.5 cents to average $5.025.

In the country’s midsection, where some of the chilliest weather of the fall season is on tap, Southern Star spot gas prices climbed 51.5 cents to average $4.845, while Lebanon cash moved up 42.5 cents to $5.130.

Over in the Rockies, Northwest Pipeline Wyoming Pool cash averaged around $4.955, up 31.0 cents on the day. Given the crisp air and tight pipeline capacity on the East Coast, Iroquois Zone 2 tacked on 71.5 cents to average $5.645, while Texas Eastern M-3, Delivery jumped 40.5 cents to $5.225.