• EIA reported an injection of 8 Bcf natural gas into storage
  • Further improvement in weather-driven demand fueled gains
  • Continued strong LNG levels also provided price support

Further gradual improvement in weather-driven demand expectations and continued strength in export levels offset a bearish storage report and boosted natural gas futures on Friday. 

markets

The December Nymex contract gained 1.9 cents day/day and settled at $2.995/MMBtu. It had climbed as much as 10 cents higher in morning trading. January rose 2.8 cents to $3.122.

NGI’s Spot Gas National Avg. dipped 6.5 cents to $2.600 after posting gains each of the four previous days.

The U.S. Energy Information Administration (EIA) reported an injection of 8 Bcf into storage for the week ending Nov. 6. The result was shy of market expectations and notably bearish compared to a week earlier, when EIA reported a withdrawal of 36 Bcf that marked the first pull of the season.

It also was well off the median of major polls. Reuters and Bloomberg surveys both landed at an estimate of a 3 Bcf decrease in storage. A Wall Street Journal surveyfound an average call for a decrease of 2 Bcf. NGI forecast a 5 Bcf increase.

The increase for the latest covered week lifted inventories to 3,927Bcf, up from 3,731 Bcf a year earlier and ahead of the five-year average of 3,751 Bcf.

The plump storage levels and resumption of injections did not subdue markets, however, as the prompt month recorded its third daily gain of the week.

While there were indications that colder momentum could ebb, Bespoke Weather Services said its forecast for gas-weighted degree days (GWDD) showed further gradual gains on Friday – the fourth consecutive day of increases and a vital driver of futures to culminate the week.

“Given the colder shift the last few days, this sentiment makes sense,” Bespoke said.

Bespoke and other forecasters, however, said after mid-November, temperatures are likely to shift from cool to relatively warm for that time of year, with highs of 60s to 80s over much of the country outside of the far north.

“We feel the colder changes the last few days, while significant, will turn out to be just a window of variability in the midst of a warm base state, and that we will move more decisively in the warmer direction at the end of the month and into early December,” Bespoke said.

With production still recovering from the pandemic and demand strong for liquefied natural gas (LNG) exports ahead of winter in Europe and Asia, however, a favorable near-term weather outlook was enough to drive futures higher. LNG feed gas flows hovered around 10.7 Bcf/d Friday – a record level – NGI data show. The robust LNG volumes are far above the recent summer lows of about 2 Bcf, reached amid the demand destruction caused by coronavirus outbreaks last spring.

“Despite the warmer-than-normal tilt in the forecast, total demand for natural gas, including LNG, is running very high, and total production is far below year-ago levels — providing continued fodder for bulls,” said analysts at EBW Analytics Group.

“The uptick in the storage surplus needs to be understood in context. The Covid-driven supply disruption has reversed years of oil-driven associated gas price gains, while dry gas producers need to direct free cash flow to repairing the balance sheet after years of very low prices,” EBW analysts said. “At the same time, core demand — driven primarily by increasing LNG exports — is rising. As such, the brief storage uptick by no means derails the thesis that core supply/demand imbalances are likely to drive Nymex price gains.”

Aside from weather, the pandemic remains a thorny wildcard. While news this month of a vaccine potentially being made available this year injected a dose of optimism into markets, health officials say it may take months to distribute enough shots to end virus outbreaks. In the meantime, the pandemic has intensified this fall in Europe, leading to new economic restrictions in several countries, and it is now exploding across much of the Lower 48.

For the first time, the United States on Thursday reported more than 150,000 new coronavirus cases in a single day, and daily infections surpassed 100,000 every day of the trading week. The nation’s total case count now exceeds 10.5 million. Deaths approached 250,000, according to Johns Hopkins University’s count.

Governors in several states, from New York to Utah, this month ordered new restrictions on daily life in efforts to curb outbreaks. Those measures could boost residential energy use, given more time at home, but they could also sap industrial and commercial demand. With no comparable experience in modern history, some analysts worry about a net loss for natural gas heading into the key winter months.

For government’s wary of the economic consequences of new lockdowns, however, record infection rates “offer limited room to maneuver” in terms of other responses, said Rystad Energy analyst Bjornar Tonhaugen.

Cash Prices

Spot gas prices fell just short of a fifth-consecutive day of gains, led lower by drops in California, where high temperatures hung in the 60s for comfortable conditions and light demand.

SoCal Citygate shed 73.0 cents day/day to an average of $3.420, and SoCal Border Avg. lost 23.5 cents to $2.915.

Overall, National Weather Service forecasts called for cold in the nation’s northern reaches to continue through Tuesday, generating heating demand early in the week. However, warmer conditions are expected to roll in as the week progresses.

Spot prices across the country were mixed and mostly up or down by a few cents. In the Midwest, for example, Dawn finished up 2.0 cents to $2.625, while Chicago Citygate dropped 1.0 cent to $2.675.

In the Northeast, where prices have proven choppy in November, Tenn Zone 6 200L lost 41.5 cents to $2.485, and Niagara declined 17.5 cents to $2.070.

In the Atlantic, meanwhile, the record storm season continued unabated. Tropical Storm Eta made landfall on Thursday in western Florida, and it later moved out to sea without causing major production disruptions. However, Tropical Depression 31 formed Friday in the Caribbean Sea. AccuWeather meteorologists expected it to strengthen and become the next named tropical system.

Should it reach tropical storm strength, the National Hurricane Center (NHC) would name it Iota, marking the farthest into the Greek alphabet the NHC has reached in a season. The 2020 storm season has already set the record for most named storms with 29.

As of Friday, however, Tropical Depression 31 was not expected to reach production facilities in the Gulf of Mexico.

“The system will move across the central Caribbean Sea during the next day or so and approach the coasts of Nicaragua and northeastern Honduras late Sunday and Monday,” NHC forecasters said Friday.

While LNG has proven a bright spot in November, upcoming maintenance on Natural Gas Pipeline Co. of America (NGPL) could threaten recent gains, Genscape Inc. analyst Preston Fussee-Durham said.

On Thursday, “during routine operations, NGPL discovered a leak at the filter separator” at a delivery point with Sabine Pass in Cameron Parish, LA, the analyst said. Effective Thursday through Saturday (Nov. 19-21), “deliveries to Sabine Pass liquefaction facilities will be unavailable, jeopardizing up to 830 MMcf/d of feed gas deliveries to Sabine Pass LNG.

“While Sabine Pass does have access to other molecules” via the Creole Trail, Kinder Morgan Louisiana and Transcontinental Gas Pipe Line systems, “limited operationally available capacity exists to meet the entirety of NGPL’s prior deliveries.”