Following a steep Black Friday sell-off driven by a warmer outlook for mid-December temperatures, natural gas futures were trading slightly higher early Monday, helped by cooler revisions in the latest data. The January Nymex contract was trading at $2.331/MMBtu at around 8:40 a.m. ET, up 5.0 cents from Friday but off nearly 20 cents from pre-Thanksgiving levels.
On Friday both the American and European models “agreed on a transition into a warmer regime” for the middle third of December, according to Bespoke Weather Services. The American model “backed away from this” heading into Monday’s trading, coming in “considerably colder than what it showed the other day, and closer to the long-term normal for the next 15 days as a whole.”
Conversely, in its latest run ahead of Monday’s session the European model came in “even warmer than it was back on Friday,” Bespoke said. “The main difference lies in the Pacific side of the pattern,” as the American model “no longer shows a trough over Alaska out in the 11-15 day time frame, which allows some colder air back into the pattern across the U.S.”
Support for the January contract at $2.500 broke “decisively” on Black Friday, EBW Analytics Group analysts said. The move was triggered by bearish forecast trends, with continued production growth and light trading volume also likely contributing, the analysts said.
“After Friday’s intense sell-off, natural gas prices could recover modestly today,” according to EBW. “With the storage surplus versus last year likely to mount rapidly for the next few weeks, however, if the current weather forecast holds, further tests of support are likely.”
Looking at the supply picture, Lower 48 production “ran strong” over the Thanksgiving holiday, averaging 94.27 Bcf/d since Thursday and setting a new daily record high at 94.71 Bcf/d on Saturday, according to estimates from Genscape Inc.
However, “December could be the last month of growth for a while,” Genscape senior natural gas analyst Rick Margolin said. “…Growth in the Permian, Rockies and Gulf of Mexico is expected to just barely outpace the anticipated turning-over of production in the East, as well as a continuation of declines in the Midcontinent.”
Production volumes from the East “may already be in decline. Ohio production topped out back in early September; West Virginia peaked in late October; Southwest Pennsylvania peaked in early November; and Northeast Pennsylvania production might have peaked two weeks ago.”
Shortly before 8:40 a.m. ET, January crude oil futures were trading $1.09 higher at $56.26/bbl, while January RBOB gasoline was up 2.9 cents to $1.6200/gal.
Things appeared to be quieting down last Wednesday as market participants looked ahead to a long Thanksgiving holiday weekend, according to Genscape Inc. senior natural gas analyst Rick Margolin.
“Forecasts continue to show slightly colder-than-normal temperatures for most of the country over the next 14 days, but the forecasts are also trending ever-so-slightly milder. As a result, our forecast shows a few days early next week of 100 Bcf/d-plus demand, but a far cry from levels hit during the cold snap from a few weeks back,” Margolin said. “Meanwhile, production levels are running steady at 94 Bcf/d-plus.”
Helping to soak up some of this production, U.S. exports, including via liquefied natural gas (LNG) and via pipeline to Mexico, are up 3.4 Bcf/d year/year, according to Genscape’s estimates. As of Wednesday, the firm’s estimates showed aggregate U.S. exports had averaged 12.28 Bcf/d over the past 30 days.
Margolin attributed the year/year increase to LNG trains coming online since last year, as well as the start-up of the Sur de Texas-Tuxpan pipeline delivering gas from South Texas into Mexico.
“The bulk of the aggregate gains are from the LNG space,” Margolin said. Estimates Wednesday showed feed gas deliveries to LNG terminals back up above the 7 Bcf/d mark after operational issues at the Sabine Pass and Corpus Christi terminals, “along with continued volatility in deliveries to Freeport for its commissioning process” had dropped feed gas volumes to a two-week low of 6.4 Bcf/d on Monday (Nov. 25).
As for exports to Mexico, volumes had averaged 5.28 Bcf/d month-to-date as of Wednesday, with total exports over the prior 30 days coming in about 0.5 Bcf/d above the prior year period, the analyst said.
Sur de Texas-Tuxpan has been moving around 0.7 Bcf/d, but Genscape has been advising clients that “flow rates this high were possible only by diverting exports off other lines,” Margolin said. “This is what is happening, with exports from South Texas’ NET Mexico to Mexico’s Los Ramones line having declined by about 0.3 Bcf/d from the same period last year. As a result, total South Texas exports are up about 0.44 Bcf/d year/year.”
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