Natural gas futures forged higher on Monday, marking a sharp reversal from the prior trading session, as domestic production tapered and European demand for U.S. exports held steady.

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At A Glance:

  • The prompt month tacked on 22.6 cents
  • Demand outlook remains dubious
  • U.S. exports of LNG expected to hold strong

Coming off a 35.8-cent sell-off on Friday, the December Nymex contract gained 22.6 cents day/day and settled at $5.017/MMBtu on Monday. January rose 22.4 cents to $5.104.

NGI’s Spot Gas National Avg. declined 2.5 cents to $4.665 as chilly temperatures permeating the East Coast were offset by mild conditions elsewhere.

Looking ahead, mid-range weather outlooks have shifted between increased warmth and cold in recent days, leaving forecasters dubious about demand levels in the second half of November.

“After some serious volatility in the weekend weather model runs, with a large warmer shift Saturday, followed by a big turn back colder yesterday, then some meeting in the middle overnight…the pattern remains in a variable state, dancing around normal, refusing to cleanly break one way or the other,” Bespoke Weather Services said Monday.

“The best guess here is that the key areas in the eastern two-thirds of the nation remain in a back-and-forth, variable state, with no clear lean in the pattern to either the cold or warm side of normal — a very neutral regime,” the firm added.

The benign forecasts noted, Bespoke said it appeared that the market concluded on Monday that futures had been oversold last week and traders, recognizing the dip, bought back in ahead of inevitably colder conditions to come in December.

At the same time, while production held close to 2021 highs around 95 Bcf/d last week, estimates Monday pointed to a leveling off of output just below that level to start the week.

“Tapering production” along with strong export demand helped prop up Nymex futures, EBW Analytics Group said.

The EBW team noted that the domestic rig count has surged 58% since the beginning of the year, including a 23% gain in natural gas-directed rigs, but shale activity still remains below pre-pandemic levels.

At the same time, U.S. exports of liquefied natural gas (LNG) are holding near record levels, with demand strong from both Asia and Europe. LNG feed gas volumes hovered around 11 Bcf Monday, with export destinations in Europe in particular clamoring for U.S. gas amid a supply shortage on that continent. 

Russia has promised to ramp up pipeline supplies to Europe, but Russian exporter Gazprom PJSC chose not to allocate pipeline space in advance for flows sent through Belarus and Poland toward Germany, a Bloomberg analysis showed, nor did it reserve additional pipeline capacity offered at the border with Ukraine.

This called into question whether Russian gas would prove meaningful in helping Europe balance supplies with winter demand, especially if the coming season is particularly cold. In the meantime, Europe continues to call for U.S. LNG, providing a key measure of support for American markets.

With the mixed demand picture as the backdrop, the EBW analysts said markets are looking for a late-season injection of natural gas into storage with this week’s Energy Information Administration (EIA) inventory report.

Bespoke modeled a 25 Bcf increase for the week ended Nov. 12. NGI estimated a build of 23 Bcf. The early projections compare with a 28 Bcf injection a year earlier. The five-year average result, however, is a withdrawal of 12 Bcf.

EIA printed a 7 Bcf injection into U.S. gas stocks for the week ended Nov. 5. Total Lower 48 inventories stood at 3,618 Bcf, 3% below the five-year average, according to EIA.

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Spot Prices Sink

Cash prices crept lower on Monday amid a mixed bag of conditions. Chilly highs in the 40s extended across much of the Northeast, fueling heating demand, and consumption rose in the West as well.

But temperatures were poised to moderate throughout the nation’s midsection late Monday and into Tuesday, curbing overall energy needs.

In the East, PNGTS gained 33.0 cents day/day to average $5.825, while out west, SoCal Border Avg. spiked 63.0 cents to $5.440.

Prices from the Midwest to Texas, however, dropped.

Chicago Citygate fell 17.0 cents to $4.550, while Enable East lost 21.5 cents to $4.285 and Katy shed 19.0 cents to $4.420.

For the rest of the week, NatGasWeather predicted areas of solid demand due to a weather system tracking across the Great Lakes, Northeast and MidAtlantic early this week with scattered rain, snow, and “chilly lows of 20s and 30s. A second system will bring rain and snow to the Northwest with lows of 30s-40s.”

Elsewhere, however, demand could prove modest. “Most of the rest of the U.S. will be mild to warm and dry with highs of 60s to 80s,” NatGasWeather added. “The system over the Northwest will track across the Midwest late in the week, tapping colder Canadian air for lows of teens to 30s.” Weather systems are to continue across the northern U.S. next weekend, but with mild breaks between.

Looking to the final full week of November, the firm said, freezing overnight conditions will become more consistent across the northern United States, though forecasts again call for the possibility of “milder breaks” that allow for highs in the 50s and 60s. The southern and western expanses of the Lower 48 “will be mild to warm with highs of 50s to 70s.”