Natural gas futures sold off Tuesday, eating into gains from the previous session, although a potentially robust start to withdrawal season this week could serve up an early holiday feast for the bulls in a seemingly unpredictable price environment.

In the spot market, locations throughout the Northeast and in the West posted big gains as prices were mixed through the middle third of the country; the NGI Spot Gas National Avg. added 35.0 cents to $5.290/MMBtu.

Nymex futures turned in another day of wild price swings Tuesday. After a 42.8 cent rally to settle at $4.700 Monday, the prompt month sold off overnight to as low as $4.361 before steadily climbing through the early morning hours. The variability continued throughout the conventional trading day, with prices dipping back down into the $4.300-$4.360 area shortly after lunchtime on the East Coast before rallying into the settle.

The December Nymex contract eventually settled at $4.523, down 17.7 cents on the day after trading as high as $4.672 and as low as $4.274. January settled 19.1 cents lower at $4.521, February fell 18.6 cents to $4.386 and March settled 17.0 cents lower at $4.125.

“It was another surprising day in the natural gas space, as volatility remains incredibly elevated and it is near impossible to discern the rationale behind certain moves,” Bespoke Weather Services said. Prices were “strong” early Tuesday “on decent cash strength before pulling back in tandem with major selling across the crude complex.”

The midday selling came despite models maintaining long-range cold risks, which the firm viewed as surprising.

“Then prices rocketed higher into the settle as European model guidance kept significant long-range cold risks,” Bespoke said. “European guidance was not nearly cold enough compared to its overnight run to justify the move into the settle, but rather prices were just clearly not supposed to be below $4.40 and especially $4.30 with the long-range cold risks still on models.

“With crude continuing to get hit we may see some selling in lower liquidity periods, but we still see the bias as being a bit higher if anything given long-range cold risks” and expectations for a “very bullish” Energy Information Administration (EIA) storage report Wednesday.

Estimates for this week’s EIA report — due out a day earlier than usual at noon ET Wednesday — point to a triple-digit withdrawal for the week ended Nov. 16. A triple-digit pull would kick off the withdrawal season in style and significantly widen the already steep year-on-year and year-on-five-year inventory deficits that have helped make markets jumpy.

A Reuters survey of traders and analysts predicted a 109 Bcf withdrawal for the week, with a range of minus 92 Bcf to minus 121 Bcf. A Bloomberg survey showed a median prediction for a 108 Bcf withdrawal, with a range of minus 99 Bcf to minus 120 Bcf. Kyle Cooper of IAF Advisors called for a 120 Bcf withdrawal, while Intercontinental Exchange EIA financial weekly index futures settled Monday at a withdrawal of 114 Bcf.

Last year, EIA recorded a 42 Bcf withdrawal for the period, and the five-year average is a withdrawal of 25 Bcf.

Energy Aspects late last week issued a preliminary forecast for a 122 Bcf withdrawal for the upcoming EIA report, citing a “two-fold increase” in gas-weighted heating degree days (GWHDD) week/week, with a 15 Bcf/d increase in residential/commercial demand and a 5 Bcf/d increase in power demand. Maintenance activity in the Permian Basin led to a 0.5 Bcf/d decline in production, which was offset by an uptick in Canadian imports, according to the firm.

Some of the extreme volatility observed in the market recently has been “driven by positioning, short-covering, stop-outs and the follow-through of algorithmic trading on the movements of both of the former,” Energy Aspects analysts said. “…Our forecasts do not peg another triple-digit withdrawal until the week ending Dec. 14. The next several reports will show a notable step down in storage activity, on lower GWHDDs and Thanksgiving holiday impacts.

“Subsequently, some step down in cash pricing has been anticipated on the lower call on storage,” according to the firm. Cash prices are not likely to drop “meaningfully below the high $3.00s unless a significant return to milder weather emerges in the forecasts.”

In terms of the latest supply picture, Genscape Inc. data showed top-day production nominations for the Lower 48 down 0.7 Bcf/d day/day Tuesday, but month-to-date supply continued to outpace October output.

Genscape’s Spring Rock production estimate for Tuesday came in at 85.2 Bcf/d, down about 730 MMcf/d from Monday based on drops in Texas, the Permian Basin and the Rockies, according to senior natural gas analyst Rick Margolin.

“As always, that number is subject to change with nomination revisions. During the past week revisions have largely tended to be upward, including one day last Friday in excess of 1 Bcf/d,” Margolin said. “Taking a bit of a larger view, month-to-date production continues its upward trajectory, averaging 85.18 Bcf/d, more than 0.4 Bcf/d above October’s average.

“Strong month-on-month output from the Gulf Coast region and Northeast have been more than offsetting operationally-driven declines out of the Permian, Rockies and San Juan.”

Northeast Up On Potentially Frigid Turkey Day

Physical prices continued to strengthen in the Northeast Tuesday with forecasters calling for the region to experience a frigid Thanksgiving holiday.

“People spending time outdoors during Thanksgiving Day into Black Friday may face some of the coldest conditions on record in the northeastern United States for late November,” according to AccuWeather senior meteorologist Alex Sosnowski. “Thanksgiving Day 2018 will bring the coldest conditions of the autumn so far; it will flat out be blustery and frigid. Expect northwest winds to average 15-30 mph with gusts topping 40 mph.”

Sosnowski said temperatures are expected to start off near 0 degrees in northern New England Thursday morning, and could get down to near 30 degrees in southeastern Virginia. AccuWeather forecasts showed Thanksgiving Day highs in the teens across Maine’s northern tier and in the lower 30s in the Chesapeake Bay region.

In New England, Tenn Zone 6 200L added $2.600 to $14.125, while further south Transco Zone 6 NY climbed 35.0 cents to $5.060 as Transco Zone 5 added 23.5 cents to average $4.905.

Genscape analysts Josh Garcia and Dominic Eggerman attributed the recent cash strength in New England to the forecasts for cold weather arriving during the Thanksgiving holiday. After climbing above $10 last week, physical prices retreated back to around $5 “despite sample demand in the region averaging 3.41 Bcf/d over the last seven days.”

Regional demand of 3.22 Bcf/d on Monday marked just the fifth highest daily demand total in November to date, and the uptick in prices this week corresponds to forecasts showing an additional 20 heating degree days in the region Thursday.

“There are no major maintenance events in the region scheduled to begin during the coming week,” Garcia and Eggerman said, adding that both Algonquin Gas Transmission and Tennessee Gas Pipeline (TGP) have operational flow orders (OFO) in place. “TGP has gradually been expanding its OFO, which was first issued on Nov. 14. The OFO includes all areas east of Station 219 in Forest County, PA. This now encompasses TGP’s 200 and 300 pipe segments, which deliver gas to much of New England.”

In contrast to the big price moves in natural gas markets as of late, physical prices posted mostly smaller adjustments throughout the middle third of the country. Chicago Citygate climbed 4.5 cents to $4.660, while down in Texas Katy shed 8.0 cents to $4.515.

Cold air was covering much of the central and northern United States Tuesday, including deep into Texas, according to NatGasWeather. The cold front was expected to push through the East with rain and snow showers Tuesday and Wednesday to keep national demand strong, and the forecaster called for lows behind the front to range from 0 to 20 degrees, including temperatures in the 20s and 30s into Texas and parts of the South.

Further west, locations in California added to the widespread gains recorded in Monday’s session. The volatile SoCal Citygate jumped 55.5 cents to $8.015, while SoCal Border Avg. added 45.5 cents to $6.040. Further upstream prices also increased at Kern River, which finished the day averaging above $6.

“A series of fronts and a strengthening jet stream will lead to an increase in precipitation chances for the western U.S. over the next couple of days,” the National Weather Services (NWS) said Tuesday. “This will be a relief to fire-stricken areas of California and help clear out air stagnation advisories that are in effect across parts of the Northwest.

“However, hazardous conditions will be created as well. Heavy rain is possible in lower elevations in the West Coast,” the forecaster said. Into Wednesday night, “there is a marginal risk of excessive rainfall in parts of California, with embedded slight risks where the recent fires have created burn scars, which can flash flood quickly as water runs off. In the higher elevations, snow is expected, ramping up Wednesday night and Thursday.”

More than a foot of snow is forecast through Thursday evening in the Sierra Nevada mountains, NWS said, with six-to-10 inches predicted in the Cascades.