Natural gas futures slumped Thursday after a bearish government inventory report showed gas in storage grew faster than expected in early November, underscoring the effect of record production levels amid a mild start to winter to draw out the bears.
The December Nymex natural gas futures contract settled at $3.062/MMBtu, down 12.8 cents day/day.
NGI’s Spot Gas National Avg. shed 11.5 cents on Thursday to $2.930. The benchmark has pulled back for two days after it briefly rose above the $3.000 level on Tuesday.
The U.S. Energy Information Administration (EIA) on Thursday reported a rare double storage print for the two weeks ending Nov. 10. A planned systems upgrade delayed the release of data for the week ending Nov. 3. For the Nov. 3 week, utilities withdrew 6 Bcf from storage, then for the week ending Nov. 10, 60 Bcf was injected into storage, according to EIA data.
The weeks’ opposite trends were driven by the whiplash of a cold blast in the first week followed by unseasonably warm weather in the second. The draw slightly missed expectations, while the build landed well above analysts’ median expectations of 42 Bcf.
“We mentioned we thought one of the reports would miss badly due to both weeks being at opposite temperatures extremes,” NatGasWeather said. “And one did miss badly. Essentially, the damage done by the cold shot two weeks ago was completely offset by above normal temperatures last week.”
Storage, Demand Outlook
The 60 Bcf injection “was quite bearish” and is likely to lead analysts to raise estimates for the coming weeks’ EIA prints, “since it suggests production is as strong as some have shown at over 105 Bcf/d,” NatGasWeather said.
“So those production numbers look to be real,” a participant said on the online energy chat platform Enelyst. “Yeah,” another replied.
Lower 48 gas production is pacing above 105 Bcf/d over the seven-day average, according to Wood Mackenzie estimates. The higher output comes even after slowing down from nearly 106 Bcf/d over the weekend to below 104 Bcf/d during maintenance in the Permian Basin and Haynesville Shale this week.
The storage increase for the latest week lifted inventories to 3,833 Bcf, a surplus of 203 Bcf to the five-year average of 3,630 Bcf and above the year-earlier level of 3,635 Bcf.
Next week’s EIA report could swell the storage surplus higher by 50 Bcf toward 255 Bcf above the five-year average, NatGasWeather said.
Weather models on Thursday still pointed toward a frigid Thanksgiving weekend that could lift gas demand to seasonal levels. However, the data then shows “temperatures moderating/warming Nov. 29 to Dec. 1, with national demand easing,” NatGasWeather meteorologist Rhett Milne said during a presentation on Enelyst.
East Daley Analytics analyst Jack Weixel on Enelyst offered a bearish outlook that echoed a recent webinar. If winter were to continue to follow the warmer trend, “this spring could be setting up for a real train wreck,” he said. “It’s the train wreck we need, I suppose, but it also appears that at the moment, producers aren’t taking much heed.”
Looking ahead to next week’s EIA print, analysts were generally expecting a light increase. Early estimates submitted to Reuters for the week ending Nov. 17 ranged from a withdrawal of 20 Bcf to an injection of 16 Bcf, with an average build of 5 Bcf. That compares with a withdrawal of 60 Bcf a year earlier and a five-year average of 53 Bcf.
Spot Prices Drop
Next-day cash prices fell across regions Thursday, led by declines out West amid higher flows out of the Permian.
Announced maintenance work in the basin that cut an estimated 0.8 Bcf/d of capacity on Kinder Morgan Inc.’s Gulf Coast Express (GCX) pipeline Tuesday and Wednesday was scheduled to ease Thursday. The cuts came in addition to other planned work in East Texas and unannounced flow declines at intrastate interconnects.
KRGT Del Pool near Las Vegas led decliners Thursday, dropping $1.320 day/day to an average $5.605. It was followed by KRGT Rec Pool in Wyoming, which fell 86.0 cents to $5.490, and SoCal Citygate, down 82.0 cents to $6.165.
Permian production on Thursday rose around 0.22 Bcf/d day/day to 16.9 Bcf/d, Bloomberg estimated. Production elsewhere in the United States was mostly lower and more than offset the Permian’s gains, pulling down total production by around 0.67 Bcf/d to 103.3 Bcf/d, according to Bloomberg.
In contrast, the pace of LNG exports remained supportive to prices for a third day at around 14.6 Bcf/d on Thursday, following the disruption at the Freeport liquefied natural gas facility, according to NGI’s LNG Export Tracker.
National Weather Service (NWS) data on Thursday showed unseasonably warm November weather persisting across the country, with comfortable highs in the 60s and 70s from California to Texas and broadly across the Midwest, Southeast and Mid-Atlantic.
A cold front late Thursday was expected to push lows into the 30s from the Rockies to the Upper Midwest, boosting heating demand in those regions. Areas from Texas to Michigan and eastward were expected to remain warmer than normal, with lows into the 50s and 60s, according to NWS.Gains were few and modest, sprinkled across the Midwest, Louisiana and Texas. Atmos Zone 3 in East Texas led gainers, rising 16.5 cents to $2.505. Chicago Citygate was unchanged at $2.545.
