Natural gas futures rallied on Wednesday, extending a week-to-date win streak amid advancing cold in the North, strengthening spot prices and solid LNG demand.
At A Glance:
- Production off 2023 high
- Colder northern weather
- Light injection expected
The November Nymex gas futures contract gained 3.9 cents day/day and settled at $3.010/MMBtu. December rose 5.4 cents to $3.376.
NGI’s Spot Gas National Avg. gained 11.5 cents to $2.335, marking a third-straight gain.
Temperatures are likely to result in “very light” demand nationally into the weekend, NatGasWeather said. “However, a frosty system will stall over the Rockies and Northern Plains the next few days with rain, snow” and subfreezing low temperatures.
“This system will finally release and sweep across the northern and central U.S. late this weekend through next week” to deliver “the first widespread sub-freezing cold shot of the season, increasing national demand to strong levels,” the firm added.
At the same time, after reaching record highs well above 103 Bcf/d earlier in October and again to start this week, production leveled off Tuesday and Wednesday. It held below the 102 Bcf/d threshold both days amid maintenance events in the Permian Basin and in the Northeast, according to Wood Mackenzie data.
Liquefied natural gas demand also fueled bullish sentiment. While choppy over recent sessions, LNG feed gas volumes have hovered around the 14 Bcf/d level – well above autumn lows near 10 Bcf/d.
The gains followed the culmination of repair and upgrade work at several export plants, including a lengthy annual maintenance event at the Cove Point facility in Maryland. Cove Point added about 10 Bcf/d of demand over the course of the past week, according to EBW Analytics Group.
Additionally, while also volatile, European natural gas prices have trended higher recently as winter approaches and as concerns fester about war in the Middle East escalating. Israel declared war against Hamas earlier this month after the Islamist militant group attacked Israeli territory. Since then, European buyers have fretted about the potential for hits to gas supplies in the Middle East. Should that develop, it could lead to more demand for American LNG.
This is developing as swaths of northwest Europe could see early November cold, Goldman Sachs Group Inc. analyst Samantha Dart said. She said “a tightening shock such as a one-standard-deviation colder-than-average winter or a significant disruption to supply would impact northwest European gas balances enough to incentivize” higher prices and possibly gas-to-oil switching for heating needs.
Storage Estimates
Still, as analysts at The Schork Report noted Wednesday, “natural gas bulls are vulnerable as they are relying heavily on the appearance of gas furnace demand.”
Production, while down from all-time highs, remains elevated and estimates may be revised higher in coming days after maintenance work ends. In the meantime, the Schork team said, the market will turn its attention to the U.S. Energy Information Administration (EIA) storage report, slated for release Thursday morning.
NGI is modeling a 79 Bcf injection for the print covering the week ended Oct. 20. This would eclipse the 61 Bcf year-earlier build and the 66 Bcf five-year average, in large part because of robust production that has enabled utilities to stow away more gas underground for the winter heating season.
Injection estimates submitted to Reuters for the Oct. 20 period ranged from 72 Bcf to 96 Bcf and landed at a median of 79 Bcf. Bloomberg’s survey spanned builds of 76 Bcf to 88 Bcf and generated a median expectation of 81 Bcf. The Wall Street Journal’s poll produced the same range with an average increase estimate of 79 Bcf.
EIA reported a 97 Bcf injection for the week ended Oct 13. That increase, which surpassed the 85 Bcf five-year average, was driven by a surge in South Central supplies and exceeded market expectations for a build of 80 Bcf.
Mild weather in Texas and neighboring states during the Oct. 13 week enabled utilities in the South Central to inject 40 Bcf into underground stocks. Benign conditions have persisted across the region and much of the South since then.
As of the last EIA print, inventories stood at 3,626 Bcf -- above the year-earlier level of 3,326 Bcf and the five-year average of 3,451 Bcf.
Cruising Cash Prices
Spot gas prices varied by region but continued to surge in the frozen Rockies and rebounded in West Texas to boost the national average.
Kingsgate in the Rockies spiked $1.135 day/day to average $4.035, and Opal gained $1.315 to $4.500.
In the Northwest, which also caught glances of the cold front, Northwest Sumas jumped 98.0 cents to $6.040.
NatGasWeather said that, aside from the cold shots over the North, mild conditions are favored in forecasts for most of the South, parts of the East and the West Coast through this week and into early November.
Then, the firm said, much of the country would warm to near or above normal Nov. 4-8 “as high pressure strengthens with highs of 40s-60s across the northern U.S.” for decent heating demand “and 60s-80s across the southern U.S. for light demand.”
Meanwhile, Kinder Morgan Inc.’s Permian Highway Pipeline (PHP) maintenance project that is planned for all of this week and through the end of the month was slated to limit takeaway capacity from the Permian Basin to 1.73 Bcf/d – from 2.1 Bcf/d – for several days.
During recent PHP curtailments, supply gluts formed and Waha prices in West Texas flipped negative. That happened again on Tuesday of this week. But on Wednesday, prices at the hub bounced back 62.5 cents to 38.5 cents. El Paso Permian followed a similar trajectory, dropping into the red on Tuesday but rebounding 92.5 cents the next day to 53.5 cents.
On the hurricane front, AccuWeather noted that Hurricane Otis made landfall near Acapulco, Mexico, early Wednesday “as a dangerous Category 5 storm on the Saffir-Simpson Hurricane Wind Scale, with life-threatening and destructive flash flooding and mudslides.”
Otis lost some power as it drifted northward across southern Mexico, but it still was expected to wreak havoc as it did so. Remnants of the storm could eventually reach Texas and neighboring states.
“A major hurricane has not made landfall in this area in modern times,” AccuWeather Chief Meteorologist Jonathan Porter said. “Otis may result in catastrophic damage and will quickly become a humanitarian crisis in the wake of the storm, with many people needing medical care and supplies, food, shelter and safe drinking water."
Hurricane Tammy also gained some intensity from Tuesday into Wednesday as a Category 2 hurricane, AccuWeather said. It was spinning to the northeast of Puerto Rico, the firm said. AccuWeather said it was expected to track to the north over the next few days, but as it transitions to a tropical rainstorm by early next week, direct impacts to the United States were not expected.
