Continued warmth in the temperature outlook kept natural gas futures bulls on the defensive in early trading Friday. After recording heavy losses this week, the December Nymex contract was down another 2.6 cents to $2.916/MMBtu at around 8:40 a.m. ET.
Based on the latest guidance, Bespoke Weather Services reduced its projected gas-weighted degree day totals for the 15-day outlook early Friday, rounding out a full week of consecutive warmer revisions to the firm’s forecast.
“It still appears likely that warmer than normal weather will roll into the final third of November as well,” Bespoke said.
Movement in the major models was mixed overnight, with the American dataset shifting warmer but the European model moving slightly colder in the medium range, according to the firm.
“Both showed some marginal warming in the near-term, which is why we went with a net warmer shift, as this pattern type is one that suggests that models will not be warm enough in the medium range,” Bespoke said.
Another sharp sell-off for the December contract in Thursday’s session suggested traders have been weighting the warm forecast more heavily than evidence of tightening balances, as another bullish surprise from this week’s Energy Information Administration (EIA) storage report failed to sustain a rally.
EIA on Thursday reported a net weekly withdrawal of 36 Bcf — the first of the season — that exceeded expectations. Ahead of the report, a Bloomberg survey found a median estimate of a 31 Bcf decrease, while a Reuters poll landed at a median decrease of 27 Bcf. NGI forecast a 28 Bcf pull.
Lower 48 inventories finished the week ended Oct. 30 at 3,919 Bcf, 200 Bcf higher than last year and 201 Bcf above the five-year average, according to EIA.
After EIA published the larger-than-expected print, “bears latched onto warming weather forecasts, which are about to throw us back into injection territory,” analysts at Tudor, Pickering, Holt & Co. (TPH) wrote in a note to clients Friday. The firm’s early modeling suggests a 12 Bcf injection for next week’s report, and weather forecasts “continue to show record warmth for November.”
This week the winter strip has “sold violently,” with the January contract down to slightly above $3.00 after closing out last week near $3.50, the TPH team noted. Current strip pricing appears low assuming “a normal weather scenario for the rest of winter, but temperatures will need to flip quickly or we see material risk” for an “unwind of a very crowded winter trade.”
Total supply has “crept up” to around 90 Bcf/d, even with curtailments in the Marcellus Shale, a trend that coincides with rising Candian imports, according to TPH.
“All said, supply/demand balances still look tight if weather neutralizes and the recent equity sell-off puts gas stocks at attractive levels,” the analysts said.
December crude oil futures were off 84 cents to $37.95/bbl, while December RBOB gasoline was down about 2.1 cents to $1.0952/gal.
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November 06, 2020 at 09:05PM
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Warm Forecast Pulls Natural Gas Bears Out of Hibernation as Futures Continue Slide - Natural Gas Intelligence
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