Tuesday marked a second day of small shifts along the natural gas futures curve, with flip-flopping in the latest weather models taking a toll on prices. Even with export demand hitting a fresh high and supply taking a hit, the January Nymex contract fell as much as 4.9 cents before going on to settle only two-tenths of a cent lower day/day at $2.880. February ticked up 0.003 cents to $2.868.

Markets

Cash prices also slipped outside of the East Coast, despite continued strong demand there and in the country’s midsection. NGI’s Spot Gas National Avg. fell 7.5 cents to $2.750.

With more cold expected in parts of the country later this week, any resulting strength in the cash market could limit downside risk for futures, according to EBW Analytics Group. The firm said despite the bearish turn in the latest weather models, space heating demand in Weeks 1-3 still is expected to remain “far above recent levels.”

Bespoke Weather Services, however, was hesitant to put too much confidence in the projected cold being teased in the long-range forecast given the abrupt turn in the latest European data. The forecaster said the European and American models still showed the potential for cold late in the 11- to 15-day outlook, “but less emphatically.”

Furthermore, there is some warmer weather before then, according to Bespoke, and it is more difficult to trust the models until there is consistency and progression in the forecast. For now, the firm’s confidence is back below average. The outlook for now kept the first half of December variable and near the five-year and 10-year normal.

“But if the warmer shift is more than just a hiccup, downside risks increase,” Bespoke said.

Shifting Balances

The potential for a further price slide comes even as liquefied natural gas (LNG) feed gas volumes hit a new high on Tuesday. NGI data showed deliveries to U.S. LNG export terminals jumping more than 0.6 Bcf day/day to 11.3 Bcf.

Meanwhile, U.S. production showed a 2 Bcf day/day decline, but as Bespoke noted, there often are revisions at the beginning of a month.

“With Europe colder over the next two to three weeks, that bodes well for LNG to remain at high levels, but we need to see more convincing signs of a colder shift here in the U.S. to sustain any rally from here,” Bespoke said.

[NGI’s natural gas price indexes have included trade data from both price reporters and the Intercontinental Exchange (ICE) since 2008. Find out more about our price index data here.]

Aside from how the weather pattern shakes out, daily demand observations, particularly in the power stack, will be important for the remainder of the week, as will the Energy Information Administration’s (EIA) weekly storage inventory report, according to Mobius Risk Group. Mobius noted that so far, the range of expectations for Thursday’s EIA report is for a draw of 10 Bcf to a build of 10 Bcf. Last week, the EIA reported an 18 Bcf withdrawal for the week ending Nov. 20.

“The potential for a storage build being reported for the Thanksgiving week is certainly a headwind that will need to be countered by significantly larger daily storage withdrawals over the next three days, or the bears may be able to keep pressure on the January contract and the March/April spread, which still sits at a paltry 11 cents,” the Houston-based firm said.

ICAP Technical Analysis’ Brian Larose said Monday’s move in Nymex futures was a “nice turn higher,” but the rally was not enough to get natural gas over last week’s $3.002 high. This is the immediate task for the bulls.

“Bust through and the bulls will have a chance to continue chipping away at the ratio retracements associated with the $3.507 high,” Larose said. “Fail to promptly clear $3.002 and the bulls run the risk of affording the bears another opportunity to make a run at the $2.656 low.”

Looking ahead to the next few weeks, EBW said the market is expected to be driven primarily by day-to-day swings in the 15-day forecast and early signals of potential cold during the second half of December. Both of these are likely to swing back and forth repeatedly, creating significant natural gas price volatility.

If current medium- to long-term forecasts are in the right ballpark, though, a chillier pattern is likely to emerge later this month. This could result in the year/year storage surplus sinking rapidly and then turning into an increasingly large deficit in January, according to EBW.

“As this occurs, the severity of the supply deficit facing the market is likely to become evident, laying the groundwork for significant price increases in 1Q2021.”

Quick Cash Retreat

U.S. gas markets were generally lower Tuesday despite continued cold across much of the country. Double-digit losses were the norm, except in West Texas, where prices came off less than a dime day/day.

NatGasWeather said national demand should be strong the next few days as one system tracks through the East with rain and snow, while a second drops into the western and central United States. The forecaster said the second system could send temperatures as low as zero, with some minor wellhead freeze-offs possible.

However, the eastern United States is forecast to warm back into the 50s and 60s across most areas to ease national demand back to lighter levels, according to NatGasWeather. Although another weather system is expected into the Southeast and up the East Coast this weekend, the rest of the country would likely be quite comfortable for early December. This includes the Midwest, where temperatures are projected to be 10-25 degrees warmer than normal. 

Chicago Citygate next-day gas dropped 13.0 cents day/day to $2.545, while Northern Natural Ventura fell 14.5 cents to $2.480.

Benchmark Henry Hub was down 7.0 cents to $2.805, but several other pricing locations in South Louisiana were down more than a dime from Monday.

In the Southeast, Transco Zone 5 spot gas plunged 17.5 cents to $3.125.

However, gains continued on the East Coast as projected demand climbed again Tuesday and is now expected to peak at 22.8 degree days on Wednesday, according to Genscape Inc. Regionally, temperatures are around the 30-year norm for Appalachia and below the norm for New England.

The firm said the EIA East demand sample has risen 8.66 Bcf/d over the last six days and 5.89 Bcf/d over the last two to hit 29.64 Bcf/d as of Tuesday. Over that six-day period, the Southeast Mid-Atlantic (SEMA) gained 3.30 Bcf/d, Appalachia gained 4.26 Bcf/d and New England gained 1.10 Bcf/d.

Genscape analyst Josh Garcia said despite heightened demand, pipelines across the Northeast including Algonquin Gas Transmission, Millennium Pipeline, Texas Eastern Transmission and Tennessee Gas Pipeline lifted operational flow orders (OFO). However, pipelines exposed to the cold in SEMA declared OFOs, including Transcontinental Gas Pipe Line, East Tennessee Pipeline, and Southern Natural Gas Co.

Despite dropping the OFO from its system, Algonquin Citygate next-day gas jumped 41.0 cents day/day to $2.780. Interestingly, Transco Zone 6 non-NY was up only 7.0 cents to $2.625.