Natural gas futures reversed early day gains Thursday to fall for a fifth consecutive session after the weekly storage report printed a build that landed at the high end of expectations. The January Nymex natural gas futures contract settled at $2.802/MMBtu, down two-tenths of a cent day/day. February fell six-tenths of a cent to $2.763.
Spot gas prices, meanwhile, broadly fell across all regions Thursday ahead of warmer weather into the weekend. NGI’s Spot Gas National Avg. lost 31.0 cents to $2.860.
The U.S. Energy Information Administration (EIA) storage print on Thursday, covering changes to Lower 48 stocks during the week ended Nov. 24, landed at an increase of 10 Bcf. This ran counter to median survey estimates for draws and historically larger declines on average.
Ahead of the EIA report, NGI modeled a withdrawal of 9 Bcf. Analysts’ estimates in polls ranged between a withdrawal of 31 Bcf and an injection of 10 Bcf, with the median views for a draw. The year-earlier print was an 80 Bcf draw, while the five-year average was a 44 Bcf withdrawal.
While the period was cooler week/week, there were other factors leaning to a bearish miss, NatGasWeather meteorologist Rhett Milne said ahead of the print. Namely, the week was still warmer than usual, wind generation increased a little week/week, and demand lightened during the Thanksgiving holiday, Milne said.
The latest EIA report swelled surpluses by 54 Bcf week/week to 303 Bcf above average. Total working gas in underground storage stood at 3,836 Bcf as of Nov. 24, or about 10% above the five-year average, according to EIA.
Amid a mild start to the heating season in November, the weekly storage trend has alternated between draws and builds, extending the injection season beyond its traditional end on Oct. 31. The EIA reported a 6 Bcf draw in the period ended Nov. 3, followed by a 60 Bcf injection, a 7 Bcf withdrawal and Thursday’s 10 Bcf increase.
This week’s chilly weather is expected to lead to the heating season’s biggest withdrawal so far, with early estimates coming in at an average 101 Bcf draw for the week ending Dec. 1. As a result, NatGasWeather said storage surpluses could fall to near 240 Bcf, but warmer weather forecast for early December could send storage surpluses back over 300 Bcf.
Weather Still Bearish?
But futures managed to move as much as a penny in the green after the EIA print and nearly settled flat on Thursday, indicating some selling exhaustion analysts warned might be possible with the market in oversold territory.
Looking beyond an expected warm stretch of weather in early December, longer-range forecasts continue to remind the market that winter is not canceled.
The strong El Niño weather pattern continues to point to a milder winter season, but “its effects should start to wane as we get into next year,” Gelber & Associates analyst Alex Gallegos said on the online energy platform Enelyst.
Indeed, forecast models for December to February are showing a “smaller light blue patch in the Midwest area indicating we may see some colder-than-normal temperatures,” Gallegos’ colleague Alex Susskind added.
NatGasWeather agreed that “some of the weather data teases colder air pushing into portions of the northern United States Dec. 13-17” but cautioned more evidence is needed to confirm the trend. What could be more important are forecasts showing colder air moving into western Canada that could then move into the United States, the forecaster said.
“The second half of December needs close monitoring as there’s potential for colder U.S. patterns/trends,” according to NatGasWeather.
Meanwhile, stout production levels have eased somewhat. Production is running 1.4 Bcf/d off its Nov. 24 record with maintenance projects underway, Criterion Research analysts said Thursday. Production could rebound this weekend, but projects are expected to linger into early December, the analysts said, pointing to work on the El Paso Natural Gas Co. (EPNG) pipeline and Gulf South Pipeline in Texas.
The Gelber analysts said they did not expect freeze-offs to hinder production. On the contrary, it’s possible that production reaches a pace of 107 Bcf/d by the end of the year, the analysts said.
With “this extremely healthy level of supply, the market is starting to crater,” Susskind said. The firm expects the market could see winter’s lowest prices between Dec. 20 and Feb. 1, bottoming out between $2.50 and $2.75.
Further on fundamentals, the pace of liquified natural gas exports has slightly moderated this week, running below the 14 Bcf/d level since Tuesday, according to NGI’s LNG Export Tracker.
Physical Markets
Spot gas prices declined across the Lower 48 for a second straight session ahead of warmer weather into the weekend.
Northwest Wyoming Pool lost $1.060 day/day to average $4.855, and PG&E Citygate in California shed $1.020 to $5.135.
In the Northeast, Algonquin Citygate fell 80.0 cents to $2.695, while in the Southeast, Transco Zone 5 lost 58.5 cents to $2.845.
National Weather Service (NWS) data pointed to a continued warm-up after several chilly days. Temperatures should rebound to average levels across much of the Midwest and East into the weekend, NWS said.
For Southeast Texas and Louisiana, NWS warned of possible severe thunderstorms, tornadoes and flooding Thursday, with isolated threats further north into the Ark-La-Tex and Lower Mississippi Valley. Meanwhile, the Northwest could see heavy rain along the coastal ranges and heavy snowfall in the Cascades. In the Southwest, heavy snowfall is possible in higher elevations in the Four Corners region, according to NWS.
The few modest spot price gains Thursday were seen in West Texas and South Louisiana. Waha added 5.0 cents to $2.005. Henry Hub rose 6.5 cents to $2.765.
EPNG was scheduled to perform work on its Black River compressor station Friday to Wednesday (Dec. 6), cutting up to 111 MMcf/d of westbound flows on the Line 2000 pipeline, Wood Mackenzie analyst Quinn Shultz said.
In addition to constraints elsewhere, “this maintenance may add some moderate looseness in the Waha region,” Schultz said. “This is mainly because EPNG’s North Mainline, as well as the other two lines which comprise EPNG’s South Mainline, are all running constrained and leaves little westbound room to flow.”
