A milder shift in the latest forecasts saw natural gas futures give back some of their recent gains in early trading Friday. After cresting the $3/MMBtu mark earlier in the week, the November Nymex contract was down 3.5 cents to $2.972/MMBtu at around 8:45 a.m. ET.
In the overnight weather data, the European model removed a “hefty” 13 heating degree days from the outlook for late October into early November, according to NatGasWeather.
The model “showed much less cool air into the northern U.S.” between next Friday and Nov. 6 “as mild to warm conditions set up over most of the U.S. besides” somewhat chilly conditions over the Northeast, the forecaster said. “As such, the pattern for the first week of November still needs to be colder, and now much colder in the European model.”
The supply/demand balance has been looking more bullish recently, and the next several Energy Information Administration (EIA) storage reports are poised to show smaller than normal builds, NatGasWeather said.
“We expect already volatile trade to get even crazier in the next few trading sessions as November 2020 expires,” NatGasWeather said. Over the weekend traders will likely focus on liquefied natural gas (LNG) export demand levels, “whether production increases on recently higher prices, and if weather patterns remain bearish-biased to start November.”
EIA on Thursday reported a 49 Bcf injection into U.S. gas stocks for the week ending Oct. 16, a print that came in slightly lower than consensus and well below both the 92 Bcf injection for the same week last year and the 75 Bcf five-year average.
Total working gas in storage as of Oct. 16 stood at 3,926 Bcf, 345 Bcf higher than last year and 327 Bcf above the five-year average, EIA said.
This week’s EIA reports marks the fifth straight “bullish print” from the agency, according to analysts at Tudor, Pickering, Holt & Co. (TPH).
“The market continues to reflect considerable tightness, averaging around 4 Bcf/d undersupplied over the past month on a weather-adjusted basis,” the TPH analysts said. “While this may seem dramatically out of equilibrium, we actually see the market very close to establishing a new balance around the $3 mark. With shut-in production back online and LNG utilization back above 80%, we see power generation as the final piece still to fall into place.”
As winter demand arrives over the next week or two, regional pricing in areas like the Northeast should “appreciate meaningfully,” leading to a “swift gas to coal shift in the power stack,” according to TPH. The firm’s modeling a roughly a 3.5 Bcf/d year/year decline in power burns this winter, enough to “nearly wipe out” the estimated undersupply and bring the market into a “new equilibrium around current strip pricing.”
Of course, weather is the perennial wildcard that could change the outlook.
“Despite weather-adjusted residential/commercial demand being flat for several years, we’ve still seen swings in the first quarter as high as 10 Bcf/d between the high in 2014 and the low in 2017, meaning both bearish and bullish outcomes are still in play,” the TPH team said.
December crude oil futures were up 16 cents to $40.80/bbl at around 8:45 a.m. ET, while November RBOB gasoline was off fractionally to $1.1575/gal.
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