Front-month natural gas forwards finished higher at most Lower 48 hubs during the Nov. 8-15 trading period, though bearish price action farther along the strip suggested a market incrementally less convinced of winter upside, according to NGI’s Forward Look.
Fixed prices at Henry Hub picked up 5.1 cents for December delivery to end the period at $3.195/MMBtu. January and February, meanwhile, shed 10.1 cents and 10.7 cents, respectively.
The national benchmark set the trend for numerous Lower 48 hubs that saw fixed price gains for December, countered by discounts for subsequent winter contracts.
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Cold East, Mild West
Pricing at demand locations in the Midwest and Northeast strengthened for December delivery during the Nov. 8-15 trading period, Forward Look data show.
Algonquin Citygate jumped 21.5 cents to $6.836. Chicago Citygate climbed 7.7 cents to $3.378. Farther upstream, Eastern Gas South advanced to $2.391 for December, up 14.2 cents.
Conversely, fixed prices at all three hubs trended lower for January and February, perhaps shedding light on the market’s thinking around what’s in store for later in the season.
The Nov. 8-15 period brought colder-trending forecast shifts that advertised frigid temperatures for key markets heading into late November. However, the durability of the coming cold remained an open question.
Maxar’s Weather Desk as of Thursday was calling for a pattern change during the six- to 10-day period, starting this Tuesday and continuing through Nov. 25.
The forecaster predicted a shift “from a warmer Pacific source region to a colder high latitude source…Temperatures quickly fall below to much below normal,” including lows in the 20s in Chicago and in the low 30s for Washington, D.C., during the period.
For the 11- to 15-day period, from Nov. 26-30, the pattern remained “supportive of below normal temperatures in the Eastern Half, and the forecast persists” below normal temperatures “here for most of the period,” Maxar said. “Meanwhile, above normal temperatures early in the Southwest increase in coverage for the West as the period evolves.”
Meanwhile, as forecast maps showed seasonally mild temperatures blanketing the western Lower 48 through the end of the month, traders there locked in discounts during the Nov. 8-15 period.
Northwest Sumas, in particular, saw its December basis premium trimmed by more than $1 for the period, finishing at plus-$6.724. Basis premiums in Southern California also shrank, with SoCal Border Avg. exiting the period at plus-$4.315 for December, a 17.8-cent discount.
A Long Warm December?
EBW Analytics Group analyst Eli Rubin in a note to clients Thursday highlighted recent forecasting from DTN that indicated “easing cold anomalies” heading into the first week of December.
The month could “start off chilly” amid lingering cold from late November, but “a transition toward a much milder outlook is favored,” Rubin said. “Even warmer temperatures are possible across the Upper Midwest, particularly if the Madden Julian Oscillation quickly transitions into Phase 3.”
Mid-December could in turn bring very mild temperatures, the analyst said, citing DTN predictions.
“From a natural gas market perspective, any reversion to a warm-dominated pattern could add to the fundamental picture of record-high production and robust storage to quickly reinstate” selling pressure, Rubin said.
Storage To Hit Five-Year Max?
U.S. Energy Information Administration (EIA) data released Thursday appeared to corroborate bearish views on market oversupply, particularly on the heels of a stretch of eyebrow-raising figures from daily production estimates.
EIA reported two weeks of statistics, covering both the week ended Nov. 3 and the week ended Nov. 10. A 60 Bcf injection reported for the week ended Nov. 10 notably exceeded pre-report expectations and immediately sent Nymex futures tumbling when the EIA data hit the market Thursday.
The December contract, after probing as high as $3.265 earlier in the session, ultimately settled at $3.062, down 12.8 cents on the day. Similar losses were priced in across the Nymex winter strip.
“The comparatively large injection for this latest week combined with preliminary estimates for next week has also spurred speculation that the injection season will see storage surpassing the upper bound of the historical five-year range,” analysts at Gelber & Associates said in a note Thursday. “Beyond just near-term storage estimates, there is substantial support for this possibility.
“The likelihood of a mild winter due to El Niño and the record strength in production, which may very well increase in anticipation of the LNG industry’s creation of more demand, also lay groundwork for the thesis that winter storage levels will be quite strong.”
Thursday’s updated production estimate from Wood Mackenzie dipped to 103.9 Bcf/d, though the recent seven-day average came in at 105.1 Bcf/d. That’s versus 30-day average production of 103.8 Bcf/d, the firm’s estimates show.
Wood Mackenzie analyst Eric McGuire pointed to increased production nominations as a key factor in evaluating the high-side miss from EIA for the week ended Nov. 10.
“Our plus-43 Bcf estimate discounted approximately half” of a 2 Bcf/d increase in production nominations for the period, McGuire said. “If we hadn’t discounted 50% of the production uptick, our estimate for this week would have been closer to plus-50 Bcf. The plus-60 Bcf report implies that even if the full increase in production nominations is real, there was additional loosening on top of this.”
Still, McGuire cautioned that EIA data has been known to demonstrate “significant week-to-week volatility” recently. “It will be important to look to next week’s report to see confirmation of this weather normalized loosening.”
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