With recent price gains seemingly not tied to fundamentals, natural gas futures prices came to their senses and tumbled on Friday amid a warming weather outlook and rising inventories. The Nymex November gas futures contract closed out the week at $6.453/MMBtu, off 28.8 cents from Thursday’s close. December futures slid 22.6 cents to $6.827.
At A Glance:
- Warmer trends seen for late October
- Another triple-digit storage build possible
- Cash prices slide ahead of weekend
Spot natural gas prices retreated further as part of the gas market’s typical weekend sell-off. NGI’s Spot Gas National Avg. fell 28.5 cents to $5.250.
After Thursday’s steep rise along the front of the Nymex curve in the face of more bearish storage data, the pullback in prices on Friday was largely expected. After all, the gas market remains firmly in the shoulder season for a couple of more weeks, with any cold snaps in the forecast expected to be brief and followed by a return to more moderate weather. Notably, the arrival of chilly weather on the East Coast also hasn’t led to widespread heating loads.
What’s more, the latest weather models show a warm-up occurring in the seven- to 15-day period. There is some cold heading to the East Coast this weekend, which should prop up demand through next week. But both the American and European datasets showed warmer weather after that, according to NatGasWeather.
The forecaster said it is important to note that the weather data has been inconsistent throughout the past week, bouncing between warmer and cooler trends. As such, there is a risk the seven- to 15-day period is too warm and may add heating degree days in time.
With the past week’s bouts of chilly air in the Midwest and East Coast, the string of triple-digit storage builds may be nearing an end. Mobius Risk Group noted that while another 100 Bcf injection is possible in the next government inventory report, the build should be far less than those seen the past four weeks.
“We have yet to see any impact from below-normal temperatures in the East, but it is worth considering that overnight lows have yet to become material enough for northern U.S. consumers to kick on heaters,” Mobius natural gas analyst Zane Curry said.
This pattern is expected to shift in the coming week, though, with daytime highs below 50 degrees for much of the Mid-Atlantic, the Northeast and the Upper Midwest. With heating demand likely to ratchet up, the market is likely to be focused on how weather models resolve the late-October pattern.
Storage No Longer A Spooky Matter
Despite the potential for cooler weather ahead, mostly mild temperatures in September and October have dramatically altered the supply landscape for the coming winter.
Traders on Friday were still digesting the latest Energy Information Administration (EIA) report, which showed a substantial 125 Bcf increase in storage for the week ending Oct. 7. The triple-digit injection – the fourth in a row – closed the gap to last year’s levels and to the five-year average.
Futures rallied in spite of the large build, and Mobius indicated the devil may be in the details when it comes to determining whether the EIA report indeed was bearish. The firm noted that while total degree days for the reference period were up by eight year/year, the number of cooling degree days (HDD) was actually 16 lower than last year.
“If heating degree days were not yet high enough to turn on heaters, and cooling demand or lack thereof was the most relevant data point then Thursday’s result is not nearly as bearish,” Curry said.
Adjusting for CDDs only, and adding back the loss of feed gas deliveries to the Freeport liquefied natural gas terminal, then the result is closer to flat year/year, according to the analyst. “Whether or not this is a rationale theory should be uncovered over the course of the next week.”
Wood Mackenzie’s Eric Fell, senior natural gas analyst, offered a similar take on the EIA figure. But he also noted that in addition to the lost cooling demand, very low nuclear/renewable generation actually has been quite supportive of gas demand. Nuclear/renewable generation was down by more than 15 gigawatts (GW) week/week to the lowest levels of the year and very close to the prior five-year average, according to the analyst.
“Year-to-date nuclear/renewable generation has averaged around 20 GW above the five-year, driven by roughly 95 GW of added wind/solar capacity in the last five years, versus only 5 GW of nuclear retirements,” Fell said.
Whether that extra pull on gas for power generation continues in the near term is unclear. Regardless, the sizable additions to underground storage over the past month have largely squashed any supply concerns for the winter.
“Compared to degree days and normal seasonality, Thursday’s reported injection appears loose/bearish by around 4.4 Bcf/d relative to the prior five-year average,” Fell said.
Falling Cash
The Midwest’s first snow on Friday did little to prevent cash prices from falling ahead of the weekend. Despite more cold on the way, spot gas prices were lower across the region and beyond amid the typical drop in demand over the weekend.
Emerson posted the largest decline day/day in the Midwest, with cash prices dropping 27.5 cents to average $5.015. Defiance was down 17.0 cents to $5.250.
Farther south in the Midcontinent, Southern Star slipped 16.0 cents to $5.150.
Spot gas prices across Texas tumbled even more ahead of the first true taste of fall the Lone Star State has seen this year. Houston forecaster Space City Weather likened the coming cooldown to Astros outfielder Yordan Alvarez because the forecast for Tuesday to Thursday “is a home run.” Sunshine, low humidity and crisp autumn air are on tap for Houston and the rest of the state – a welcome relief from the continued heat that’s played out so far in October.
“Expect 50s area-wide next Wednesday, Thursday, and Friday mornings,” said Space City meteorologist Matt Lanza. “Much of the area will probably be in the 40s on Wednesday and Thursday morning. Beyond that, we’re probably looking at a warm up next weekend into the week of Oct. 24.”
The cooler weather sent Katy spot gas prices plunging 33.0 cents day/day to average $5.090 and Tres Palacios falling 36.0 cents to $5.165.
Natural gas cash prices on the East Coast also softened. West Coast locations posted larger-than-normal declines, with prices at the SoCal Citygate off a massive $2.230 day/day to $5.765.
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October 15, 2022 at 05:00AM
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Natural Gas Futures Prices Slide on Late-Month Warm-Up, Rising Storage Stocks - Natural Gas Intelligence
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