It was probably something other than superstition that had bears fleeing the natural gas futures market Friday even as analysts continued to point to oversupply conditions. The October Nymex contract rallied 4.0 cents to settle at $2.614/MMBtu. November surged 4.8 cents to $2.653.
In the spot market, deals for weekend and Monday delivery saw a mix of adjustments throughout the Lower 48, though heavy discounts in California helped drop NGI’s Spot Gas National Avg. 6.5 cents to $2.255.
Prices have rallied steadily since bottoming out slightly above the $2.000 level last month, with bullish momentum picking up in recent weeks. The main catalyst for the recent rally has been speculators, heavily short as a group, covering their positions, a number of analysts have said.
Friday’s gains suggested there was “still a little more short-covering” among speculators, INTL FCStone Financial Inc. Senior Vice President Tom Saal said. But that’s not to discount the impact of fundamentals, even amid broader bearish sentiment.
“We’re coming up on winter. We know what happened last November. That’s still in people’s memory,” Saal told NGI. “My guess is that the speculators don’t want to go into winter carrying a large net short position.”
Now that the market has found a little upward momentum, “other types of traders may want to come in and start buying,” possibly in the form of new length among speculators, he said.
As for the weather outlook Friday, Maxar’s Weather Desk observed a mix of changes in its updated 11-15 day outlook, including warmer trends in the Midwest and cooler trends in the East.
“This is a low-confidence period, as model agreement is very poor, with the Euro projecting coast-to-coast aboves” and the Global Forecast System showing “marginal belows across the eastern half and greater warmth in the West,” the forecaster said.
The East also saw cooler changes in the six- to 10-day period, according to Maxar. “High pressure at the onset promotes below-normal temperatures in the East, with a gradual warmup expected thereafter as the high departs…Much aboves remain favored in the Midwest, with less of a cooldown taking place in the latter part of the period. Heat remains steady in the South and Texas.”
Meanwhile, the Energy Information Administration (EIA) on Thursday reported a leaner-than-expected 78 Bcf build into U.S. natural gas stocks, compared to a 68 Bcf build recorded for the year-ago period and the five-year average 73 Bcf injection. Total Lower 48 working gas in underground storage stood at 3,019 Bcf as of Sept. 6, 393 Bcf (15.0%) more than year-ago levels but 77 Bcf (minus 2.5%) shy of the five-year average, according to EIA.
“On a weather-adjusted basis, the injection implies current oversupply of around 1 Bcf/d,” analysts at Tudor, Pickering, Holt & Co. (TPH) said. “The market tightened through the week as production moderated,” liquefied natural gas (LNG) feed gas demand “bounced back, and sustained heat pushed power gen sequentially higher as the week progressed.
“Power generation is running nearly 10 Bcf/d above year-ago levels, as summer extends into mid-September, with forecasts showing above-normal temperatures for the balance of the month,” the TPH team said.
Southern California spot prices sold off Friday ahead of an expected drop-off in demand over the weekend. Southern California Gas (SoCalGas) was expecting system demand to fall from more than 2.5 million Dth on Friday to slightly above 2 million Dth on Sunday. Maxar was calling for temperatures to moderate in the region by the upcoming work week, including highs in the low 80s in Burbank, CA, Monday and Tuesday.
Heading into Friday’s trading, a stretch of hot temperatures had driven elevated demand for Southern California, with imports into the region reaching 2.6 Bcf/d, the highest levels since February, according to Genscape Inc. senior natural gas analyst Rick Margolin.
“With constraints through northern import zones still in place, the surge has come into SoCalGas’ Southern Zone,” Margolin said. “A portion of these flow increases have been at the SoCalGas TGN-Otay Mesa point, which imports gas from Mexico via the Costa Azul LNG terminal.”
Amid the recent demand, storage withdrawals had increased to more than 0.7 Bcf/d. Additional access to the restricted Aliso Canyon field, along with the use of other system fields, had helped push month-to-date average withdrawals to 0.84 Bcf/d as of Friday, compared to 0.62 Bcf/d during the comparable year-ago period, according to Margolin.
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