With updated weather models seen teasing the possibility of colder temperatures developing next month, natural gas futures rallied sharply early Friday. The November Nymex contract was up 14.8 cents to $5.263/MMBtu as of around 8:50 a.m. ET.
The latest model runs as of early Friday showed a setup that could increase the chances for more intimidating cold heading into November, according to Bespoke Weather Services.
Models added gas-weighted degree days (GWDD) in the medium-range outlook compared to previous expectations, but that “does not tell the entire story,” the firm said.
“We continue to see models step up the level of blocking in the high latitudes into early November, which, while not making things all that cold right here and now, increases the risk that some colder than normal air finally gets involved down the road,” Bespoke said. “Thus, the changes seen are potentially more bullish than the few added GWDD.”
With the 15-day outlook now stretching into the start of the heating season, “it is going to be the weather forecast that carries the most weight from here,” the firm added. “…We are definitely putting our warmer idea for November on hold for now, given the blocking shown, as any further improvement in the Pacific pattern risks bringing actual cold into the pattern, which would likely lead prices much higher next week.”
Meanwhile, the U.S. Energy Information Administration (EIA) on Thursday reported a 92 Bcf injection into Lower 48 gas stocks for the week ending Oct. 15. The build lifted stocks to 3,461 Bcf, narrowing the deficit to the five-year average to minus 4.2%.
“The key moving piece week/week was (again) primarily power generation, down about 1.5 Bcf/d week/week to roughly 31.4 Bcf/d (stronger versus the five-year average of 29.8 Bcf/d) with a largely unchanged supply picture,” analysts at Tudor, Pickering, Holt & Co. (TPH) said of the latest EIA report.
For the current week’s balances, demand for natural gas in the power sector has “remained supportive,” with gas’ share of thermal generation averaging 67%, according to the firm.
“While coal generation kicked off the month in line with our lowered forecasts given market tightness, in the past week generation has averaged around 1.65 GWh daily versus our forecast of around 2.2 GWh, supporting gas’ share within the thermal stack,” the TPH analysts said.
The firm’s preliminary modeling suggests another above-average build for next week’s EIA print that would shrink the current deficit to the five-year average to around minus 3%. Balances for next week’s report will be influenced by “modestly looser demand” week/week and increased supply from rising exports out of Western Canada, the TPH analysts said.
Wood Mackenzie analyst Eric Fell in a note to clients Friday characterized the latest EIA print as “close to neutral” in terms of balances, estimating 0.3 Bcf/d of looseness when compared to degree days and normal seasonality.
Fell said a sharp rebound in wind generation influenced the latest build as predicted.
“The weather-adjusted tightness” in the prior week’s reported 81 Bcf injection “was driven by an unusually large week/week decline in renewable generation,” Fell said.
The firm’s prediction that recovering wind generation would drive up the injection rate in this week’s print “indeed proved to be the case, with the reported injection increasing by 11 Bcf despite total degree days also increasing by 13,” the analyst said.
December Nymex crude oil futures were up 67 cents to $83.17/bbl at around 8:50 a.m. ET.
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October 22, 2021 at 08:06PM
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Models Seen Teasing Increased Chance for November Chills as Natural Gas Futures Rally - Natural Gas Intelligence
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