Natural gas bulls were on parade Thursday as the stars aligned to offer support for struggling futures prices. Thanks to lower production, a “quite strong” storage withdrawal, cooler-trending weather outlooks and solid export demand, the January Nymex futures contract settled 11.1 cents higher at $2.553. February jumped 11.4 cents to $2.570.
Spot gas prices continued to fluctuate a few cents in either direction, but large decreases were seen on the East and West coasts. NGI’s Spot Gas National Avg. fell 3.0 cents to $2.430.
After erasing some of the stout gains mounted early Wednesday, traders were on edge Thursday morning ahead of the latest government storage data. January Nymex futures were up a few cents early in the session, largely because of a sustained decline in production and strong export demand.
On the supply front, Genscape Inc. said production has been coming off recent highs and continues to trend downward. For more than two weeks consecutively, from gas day Nov. 17 to Dec. 2, the firm said production came in above the 90 Bcf/d mark. Over that same time period, production peaked above 91.5 Bcf/d.
“However, as we entered December, production levels began to drop down below the 90 Bcf/d mark,” Genscape analyst Anthony Ferrara said. “We have seen that downward trend generally continue over the past week, with production slowing in the East, Mountain and South Central regions.”
Meanwhile, export demand continues to hover near record levels. NGI data showed feed gas deliveries to U.S. terminals holding near 11.4 Bcf on Thursday after first climbing above 11 Bcf over the weekend.
The latest weather model runs also provided some optimism for bulls, with long-range outlooks showing some chillier weather next week than what was previously forecast. However, Bespoke Weather Services said the current atmospheric pattern tends to keep any true cold air bottled up in Canada, so the forecaster expects nothing more than “a day or two here and there” of near-normal demand. “…it is difficult to see a meaningful move colder.”
Despite the uncertainty on the weather front, Thursday’s Energy Information Administration (EIA) storage print solidified the move higher for futures. The EIA reported a 91 Bcf withdrawal from inventories for the week ending Dec. 4, coming in above estimates that clustered around a draw in the mid-to-high 80s Bcf.
The EIA’s 91 Bcf pull compares with last year’s 57 Bcf withdrawal and the 61 Bcf five-year average. It also blew away last week’s modest 1 Bcf draw.
The South Central region reported the largest draw week/week, pulling 32 Bcf out of storage, according to EIA. This included a 25 Bcf draw from nonsalt facilities and a 7 Bcf pull from salts.
“Texas runs the gas market,” said independent weather forecaster Corey Lefkov. Participating on The Desk’s online energy chat, Lefkov said when the weather turns chilly, the Lone Star State “can’t take the cold.”
In addition to the Texas cold blast, Bespoke said there could have been a little “make up” after the bearish miss last week, “as it is tough to rationalize the disparity in our data.” The firm had projected a draw of 85 Bcf.
Elsewhere across the Lower 48, the Midwest region withdrew 27 Bcf from storage, while the East pulled 19 Bcf, according to EIA. Mountain region inventories fell by 8 Bcf, and Pacific stocks slipped 6 Bcf.
Total working gas in storage as of Dec. 4 stood at 3,848 Bcf, 309 Bcf above year-ago levels and 260 Bcf above the five-year average, EIA said.
Regarding the price action, Huntsville Utilities natural gas scheduler Donnie Sharp said, “Somebody rubbed some smelling salts in that bull’s face; woke him up finally.”
Where prices go from here remains unclear, though, since the rest of the year looks rather warm, and there is another major holiday to get through before the calendar flips to 2021.
Raymond James & Associates Inc. analysts said the oil price crash this year still is likely to drive a massive imbalance in U.S. gas supplies in 2021. They expect U.S. gas prices to average around $2.00 this year, but exit 2021 around $4.00.
“The story remains the strong headwind to oil and associated gas production next year” after steep cuts in exploration and production spending this year, according to the analysts. “We are convinced that current oil/gas strip pricing would drive a massive domestic gas supply decline and leave us dramatically short on natural gas in 2021.”
In Raymond James’ view, the transition to a relatively normal demand environment in the coming year, paired with significant domestic natural gas production declines, sets up “quite well” for Henry Hub prices throughout 2021, assuming normal weather. This represents a fundamental disconnect between current U.S. crude oil and natural gas futures strip prices.
“Our analysis suggests commodity prices must move much higher than the current strip to help balance the market next year. All things considered, our outlook for U.S. natural gas prices is for around $3.50 in 2021,” the Raymond James analysts said.
Meanwhile, Brent crude oil futures blew through the $50/bbl “psychologically important line in the sand” on Thursday, trading to a nine-month high of $51.06, noted Mizuho Securities USA LLC’s Robert Yawger, director of Energy Futures. In addition, the February/March Brent spread traded to an 11-month high of 18 cents.
“The Brent curve is trading in backwardation through 2024, implying there is tightness in international markets,” Yawger said. “Backwardation was the best thing to happen to energy markets since Covid hit the scene (well, maybe after stimulus). But I think the curve unwinds some on a pullback from overbought levels.”
As for U.S. crude, West Texas Intermediate settled Thursday at $46.78, with the $50 handle remaining elusive across the strip.
Spot gas prices fell hard on the East and West coasts Thursday amid a varying weather outlook for the regions.
NatGasWeather said weather systems were expected to bring rain and snow to the West to close out the week. Temperatures were forecast to top out in the 30s to 60s before the weather system tracks into the central United States this weekend. However, at the same time, the eastern half of the country was to become much warmer than normal, with daytime highs reaching the 40s to 70s to keep national demand light. Most of the Lower 48 was to be warmer than normal the next few days, with the warmest conditions over Texas, the Plains and South, the forecaster said.
In California, SoCal Citygate next-day gas fell 19.5 cents to $4.540, but prices farther north barely budged. Rockies prices similarly held steady, as did prices across Texas. Houston Ship Channel cash tacked on only 1.5 cents to $2.420.
The biggest losses occurred in the Northeast, where temperatures were expected to steadily rise through the weekend. New York was in store for daytime highs near 60 by Sunday, about 15 degrees above normal for this time of year. Boston could see highs in the mid-50s, more than 10 degrees above seasonal norms. Algonquin Citygate cash plummeted 47.5 cents to $2.225, leading the barrage of double-digit declines in the Northeast.
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