Natural gas futures plunged Tuesday, as November opened its first full session as the prompt month amid demand skepticism and heavy selling.

PM market

With lofty storage levels, erratic liquefied natural gas (LNG) volumes and a weaker weather pattern in October, analysts had anticipated the rough start and cautioned that more pressure may lie ahead.  

The November Nymex contract settled at $2.561/MMBtu, down 23.4 cents day/day.

November, the first contract of the winter strip, “kicked off the season in unimpressive fashion,” analysts for the Schork Report said Tuesday.

December dropped 15.3 cents to $3.118.

Spot gas prices also declined as comfortable near-term weather conditions sapped cooling demand in the Midwest. NGI’s Spot Gas National Avg. fell 7.5 cents to $1.635.

Temperatures have cooled over swaths of the central and eastern United States. While the shift left moderate temperatures early this week, forecasts call for more striking cold snaps later this week, potentially driving heating demand in the Midwest and parts of the East. Cooling needs continue to permeate the West and Southwest, meanwhile, where summer heat remains widespread and is expected to intensify again.

However, moving into next week, Bespoke Weather Services said the western warmth “expands into the central U.S., and likely back into the East as well once toward the middle of October,” creating comfortable conditions.

By that time, the firm said, fall weather and elevated heating degree day levels are needed to drive strong national energy use. “So the warmer pattern results in well below-normal demand,” Bespoke said. “It is also worth pointing out that such a pattern would be vastly different from the last couple of years, as the pattern turned sharply colder in mid-October both in 2018 and last year.”

LNG demand, needed to offset comfortable fall conditions, also remains unreliable.

“LNG feed gas demand has been incredibly volatile over the past five and a half weeks,” EBW Analytics Group said. Demand fell 2.9 Bcf/d after Hurricane Laura shut in exports from the Sabine Pass and Cameron export facilities in late August, then surged back about 6.0 Bcf/d in mid-September as Sabine Pass came back online. Slumped then slumped again to 4.4 Bcf/d due to Tropical Storm Beta and maintenance at the Cove Point terminal in Maryland, the firm said.

With the hurricane season settling into what appears to be at least a temporary lull and with Cameron starting to ramp up this week, demand could rebound in October and support futures, EBW said. But in the meantime, volatility continues to weigh on markets.

Also at issue, of course, are hefty storage levels and looming containment threats.

The U.S. Energy Information Administration (EIA) reported an injection of 66 Bcf into storage for the week ending Sept. 18. That lifted inventories to 3,680 Bcf, above the five-year average of 3,273 Bcf. With seven weeks to go in the traditional storage season, an average weekly injection of 45.71 Bcf would put storage on track to hit 4.0 Tcf. At that level, containment risks would loom large.

Early estimates for this Thursday’s EIA storage report – covering the week ended Sept. 25 – have hovered near 80 Bcf. Bespoke preliminary estimated an injection of 83 Bcf.

“This does not mean the bullish case moving forward has gone by the wayside, but record storage levels and low weather demand can keep pressure on the front of the curve for now,” Bespoke said.

The coronavirus pandemic, too, remains a wildcard of substantial concern on the demand side. As weather cools and people spend more time indoors, the virus could spread more easily, leading to new outbreaks and diminished economic activity, and by extension, pullbacks in industrial energy use.

The number of people killed by the virus globally eclipsed one million this week, the World Health Organization said, as several countries continue to struggle with steady spread of the disease and economic interruptions.

Robert Yawger, director of energy futures at Mizuho Securities USA, said the pandemic remains a serious global threat due to its unknown duration and continued intensity. Citing data from The Atlantic’s Covid Tracking Project, he said deaths in the United States averaged about 750 in the seven days through Sept. 27, well above the 600 daily level in the first week of July. Virus deaths are on the rise across England and parts of Europe. Asia, too, continues to grapple with outbreaks.

Asia and Europe are the key winter destinations for U.S. LNG exports. LNG feed gas hovered near 6 Bcf Tuesday, down slightly from a day earlier and well below September’s highs. 

Cash Advances

Spot gas prices on Tuesday moved lower overall as demand weakened across the Lower 48’s midsection early this week.

That noted, as temperatures fall further as the week progresses, analysts anticipate heating demand to develop.

“Weather models are suggesting an early beginning to shoulder season demand in the Midwest and Midcontinent that are more reminiscent of late October than the end of September,” Genscape Inc. said.

While forecasts call for warmer temperatures in October, weather during the current week is poised to produce an unseasonably large bump in demand in the Midwest, the firm said. Its modeling shows demand peaking in the region this Friday, when cold is expected to push demand up to 6.8 Bcf/d.

“Prior to mid-October, Genscape models typically show Midwestern residential/commercial demand ranging between around 1-3 Bcf/d before ratcheting up in mid- to late October toward the 3-6 Bcf/d range,” Genscape analyst Matt McDowell said. This Friday’s projected demand total would arrive “nearly two weeks before this level of demand has been seen in the last five years and almost a month before these values fall in line with seasonal residential/commercial demand averages.”

That demand had yet to show up in Tuesday’s prices, however. In the Midwest, Chicago Citygate lost 19.5 cents day/day to an average $1.355, while Dawn shed 17.0 cents to $1.385.

In the Midcontinent, OGT lost 18.0 cents to $ 1.405.

Out West, however, “another heat wave is on the way for southern California, with daytime highs expected to approach 100 in Los Angeles by midweek,” fueling further cooling demand, Genscape said.

Prices surged at several western hubs as the heat started to escalate Tuesday. SoCal Citygate spiked $1.770 to $5.245, and Kern Delivery jumped $1.585 to $4.605.