Facing a mild December forecast and record-level production flowing into the market, regional natural gas forwards underwent widespread selling during the Nov. 22-29 period, NGI’s Forward Look data show.
January fixed prices at benchmark Henry Hub sold off 17.8 cents to end the period at $2.819/MMBtu, and January discounts of around 15 cents or more were typical for much of the country, according to Forward Look.
However, with a transient late-November cold spell delivering frosty conditions regionally, traders in the Mid-Atlantic and Northeast appeared unwilling to give up on winter upside just yet.
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A few locations in perennially constrained New England bucked the trend. As Henry Hub drifted lower, Mid-Atlantic and Northeast basis differentials strengthened or held flat.
Tenn Zone 6 200L January basis jumped 38.7 cents to finish at plus-$10.145, while Cove Point basis strengthened 28.7 cents to plus-$3.625.
In Appalachia, Texas Eastern M-3, Delivery enjoyed some strengthening in December basis for the period but saw January premiums marked down to plus-$2.615, a 42.3-cent decline. Farther upstream, Eastern Gas South January basis picked up 3.3 cents to end at a 67.1-cent discount to Henry.
Price action also included the continued deterioration of winter premiums for western Lower 48 hubs, where fixed price and basis discounts were particularly pronounced.
SoCal Border Avg. January basis slid to plus-$2.649 for the period, down 34.5 cents. Northwest Sumas basis ended at plus-$4.538 for January after a 46.1-cent discount.
Colder Second Half For December?
Forecasts advertising an extended stretch of warmer-than-normal temperatures to open the month of December weighed on natural gas prices during the Nov. 22-29 period. Outperforming production numbers only ratcheted up the pressure on weather-driven demand to soak up the ample supply.
Wood Mackenzie estimates as of Thursday showed a recent 30-day average for domestic production of 105.0 Bcf/d, nearly 5.0 Bcf/d above year-earlier levels.
Meanwhile, the first 13 days of December continued to show a “warm and bearish pattern” for the Lower 48 in the latest forecasts Thursday, according to NatGasWeather.
“The Dec. 8-12 pattern trended warmer the past few days and now forecasts a much warmer-than-normal setup over the southern and eastern U.S., with continued highs of mostly 40s to 70s and limited coverage of highs of 20s and 30s for very light national demand,” NatGasWeather said.
Modeling did provide evidence of a more seasonal pattern developing for Dec. 14-17, with colder air expected to move into the Midwest, the firm added.
“What could be more important is there’s likely to be colder air into Western Canada,” NatGasWeather said. “If this were to occur, this would likely lead to some of this frosty air eventually sliding into the northern U.S. for stronger demand.
“Essentially, the second half of December needs close monitoring, as there’s potential for colder U.S. patterns/trends.”
‘An Interesting Time’ For Natural Gas
Generally bearish price trends were of course not restricted to regional forwards during the Nov. 22-29 period; Nymex futures sold off heavily as production estimates and bearish forecasts continued to grab the market’s attention.
“It is an interesting time for the domestic natural gas market,” analysts at Mobius Risk Group said in a recent note. “There are the valid concerns/hopes related to mild weather forecasts, still near record production” and “looming demand increases on the horizon” in the form of LNG export expansions.
This comes as “quietly in the background weekly inventory data…has consistently reflected an undersupplied market since mid-June,” the Mobius analysts added.
The firm highlighted an expanding storage buffer during the month of November and notably warmer-than-normal conditions shaping up for the first half of December as pressing concerns for the market.
“Rapidly increasing expectations for end-of-March inventory, and early discussions of another 4 Tcf or greater test at the end of October are front and center” in the face of apparent production gains and mild weather, the Mobius analysts said. “…Whether or not we are priced low enough to further pressure drilling activity is a key question which likely will not be answered until this spring, and in many ways a function of how curve shape evolves between now and then.”
Adding to the bearish developments, Thursday’s U.S. Energy Information Administration (EIA) storage report revealed a 10 Bcf injection for the week ending Nov. 24, defying market expectations for a small withdrawal.
The reported build also came in sharply bearish versus the five-year average, a 44 Bcf withdrawal.
With prices already heavily discounted winter-to-date, futures ultimately only shaved off a few cents in response to the unseasonable injection. January dropped as low as $2.761 but went on to settle fractionally lower at $2.802.
Citing the Commodity Futures Trading Commission’s Commitment of Traders data, analysts at Gelber & Associates observed Thursday that “speculators were positioned net short into the move down, which may suggest that profit-taking is partially responsible for the unexpected price support.”
The South Central region posted a “massive 20 Bcf injection” in the latest EIA data, consistent with the region’s tendency in recent months to be “the culprit” behind a notable storage miss, the Gelber analysts said.
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