As traders weighed a warmer temperature outlook against the tight supply/demand balance evidenced by the latest government inventory data, natural gas futures hovered close to even early Friday. The December Nymex contract was off 1.0 cent to $3.291/MMBtu at around 8:40 a.m. ET.
Recent shifts in the weather modeling had Bespoke Weather Services making warmer revisions to its latest forecast early Friday. Models continued to show colder temperatures in the outlook failing to reach the eastern half of the Lower 48, according to the firm.
Models advertised a “downstream upper level ridge in the East, meaning above to much above normal temperatures,” Bespoke said. “We also see less potential at the end of the 11 to 15 day for a materially colder pattern to develop in the 16 to 20 day time frame, as models show less influence of ridging up into Alaska…all while maintaining the eastern U.S. warmer upper level ridge.”
Under the current forecast, and assuming normal temperatures beyond day 15 of the outlook, November would see 552 gas-weighted degree days, versus a 10-year normal of 592, according to Bespoke’s estimates.
The warmer temperature outlook is set against the backdrop of a tight supply/demand balance, tightness further reinforced by this week’s storage data.
“The problem for us is that the strength of this warmer pattern and the reduction in demand versus normal levels is enough to negate the impact of a large part of that tightness, so long as we stay this warm,” Bespoke said.
The Energy Information Administration (EIA) on Thursday surprised the market when it reported a smaller-than-expected 29 Bcf injection for the week ending Oct. 23. Prior to the report, estimates had ranged from 17 Bcf to 46 Bcf, though many surveys had reached a consensus in the upper 30s Bcf.
Total working gas in storage as of Oct. 23 rose to 3,955 Bcf, which is 285 Bcf above year-ago levels and 289 Bcf above the five-year average, according to EIA.
Analysts at Tudor, Pickering, Holt & Co. (TPH) expect this week’s bullish print to mark the last of the season’s injections.
“With injection season now behind us (we think), cumulative injections this year totaled 1,969 Bcf, or 21% below last year’s levels, aided by degree days which were 6% above norms,” the TPH analysts said. “The current week is benefitting handsomely from weather, particularly through the Rockies region where heating demand has picked up in a big way, but power burn is also running well above norms, as weak local pricing in the Northeast continues to favor gas over coal for power generation.”
These factors have the TPH analysts projecting a flip from injections to withdrawals two weeks ahead of schedule, which would help to more quickly erase the current inventory surplus to the five-year average.
“Just how quickly we converge to the five-year will largely be dictated by power burn and more specifically gas to coal switching,” according to TPH. “…As local pricing picks up, we’ll be closely monitoring fuel switching as, outside of weather, we see this being the dominant storyline through the winter.”
December crude oil futures were off 17 cents to $36.00/bbl at around 8:40 a.m. ET, while November RBOB gasoline was off fractionally to $1.0465/gal.
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