With traders shifting their focus to the upcoming heating season, natural gas forwards at coastal demand hubs saw sizable basis shifts during the Sept. 28-Oct. 4 trading period, though price moves at other locations were more muted, NGI’s Forward Look data show.
November fixed prices at benchmark Henry Hub added 6.3 cents week/week to finish just shy of the psychological $3.00/MMBtu barrier at $2.965. Prompt month prices at numerous hubs throughout the Lower 48’s middle third traded in line with Henry, with fixed price adjustments of a dime or less in either direction.
West Side (Versus East Side) Story
Demand centers in the western United States and in the Northeast posted much larger moves for contracts across the winter strip, with West Coast winter basis rising sharply and Northeast basis moving in the opposite direction, according to Forward Look data.
SoCal Citygate January basis surged 62.8 cents for the period to finish at plus-$6.093, while Northwest Sumas basis ended at plus-$8.366 for January, an increase of 52.6 cents week/week.
By contrast, Algonquin Citygate January basis shed $1.650 over the same period, ending at a still-substantial $10.899 premium to the national benchmark. Iroquois Zone 2 January basis fell to plus-$10.152, off $1.314 for the period.
This West-versus-East divergence in trader sentiment for the winter months was also on display in the week-earlier period. It parallels the contrast in market outcomes during the 2022/23 winter and, by extension, the regional storage dynamics entering the 2023 injection season.
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According to U.S. Energy Information Administration (EIA) data, Pacific region storage had dwindled to 73 Bcf as of March 31, roughly half of the 169 Bcf five-year average for the time of year.
East storage, meanwhile, ended March at 335 Bcf, a healthy cushion versus the 274 Bcf five-year average for the region.
While the Pacific region has since seen stockpiles refill to slightly above the five-year average as of Sept. 29, the aftershocks of last winter’s tight conditions still appear to be reverberating through the 2023/24 strip.
On the other hand, the moderating Northeast premiums suggest a market incrementally less concerned about the risk of regional price blowouts this heating season.
For comparison, at this time a year ago, January 2023 Algonquin Citygate basis was trading at plus-$28.043, more than triple the recent premium to the national benchmark for January 2024.
In both cases, West and East, recent history seems to be coloring the outlook for 2023/24.
Forecasts Leaning Bearish?
Regarding the Lower 48 as a whole, recent forecasts had yet to threaten the kind of early season cold that might lend a little more riskiness to the winter outlook.
Still, weather models as of Thursday had trended cooler over the prior 24 hours, increasing total degree day expectations for the northeastern United States, according to NatGasWeather.
Days eight through 15 of the outlook remained “to the bearish side” amid limited coverage of below-freezing temperatures aside from the Northeast, the firm said.
“Long-range weather maps show near to warmer vs normal temperatures over most of the U.S. Oct. 18-31 for lighter than normal demand,” NatGasWeather said. However, there remained a risk that “cooler trends show up in time across either the Midwest or Northeast, just as they did for the eight- to 15-day period over the past 24 hours.”
For Oct. 15-19, Maxar’s Weather Desk on Thursday called for “steady” coverage of above normal temperatures over the West, with the eastern half of the Lower 48 expected to see below normal conditions.
“The models are in good agreement in this regard; although, the forecast offers comparatively cooler details with respect to recent biases and a trough over the Eastern Half that would be supportive of cooler conditions than implied by the near surface projections from the models,” Maxar said.
November Rallies
After failing to decisively clear the $3.000 hurdle earlier in the week, Nymex front month futures roared higher on Thursday after the latest weekly EIA storage report missed to the bullish side of expectations at 86 Bcf.
The November Nymex contract jumped to $3.166 Thursday, 20.4 cents higher on the day.
The latest EIA print trimmed the year-on-five-year-average surplus to plus-172 Bcf as of Sept. 29. The tight injection figure introduces another wrinkle for traders to consider as they mull balances exiting the injection season.
“The big miss to today’s EIA report has many attributing it to U.S. production not being as strong as advertised,” NatGasWeather told clients Thursday. “U.S. oil and gas rigs have plunged the last several months, but that hadn’t shown up in pipeline flow data.” However, “the last couple EIA reports missed bullish and suggest otherwise.”
Production readings were seen pointing to a decline in output to open the month of October, but estimates were not showing the kind of steep drop needed to fuel supply concerns in the market, EBW Analytics Group observed prior to the release of the latest EIA number.
EBW analyst Eli Rubin noted that “our fears of a steep supply decline have not yet come to fruition.”
Pipeline flow data was showing a 0.5 Bcf/d decline for early October volumes versus end-September levels, including weaker output flowing out of Appalachia amid weak regional pricing.
“Still, while supportive on the margins and helping to lay the groundwork for a late-month rally in Nymex futures, the October declines to date in and of themselves appear insufficient to catalyze gains,” Rubin said.
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