After falling 30.5 cents mid-week, natural gas futures continued to slide on Thursday as traders failed to maintain initial momentum following the latest government inventory data. With midday weather patterns adding further decline to the supply/demand balance, the January contract settled at $6.738/MMBtu, down 19.2 cents day/day. February futures slid 18.7 cents to $6.631.
In short :
- Production back below 100 Bcf/d
- The offer is likely to run out of steam
- Strong West Coast Cash
Spot gas prices cratered as temperatures began to warm in the United States. However, with powerful winter storms still battering the West Coast, Spot Gas National Avg. fell 33.0 cents to $7.525.
After a precipitous drop on Wednesday — thanks in part to near-record production — natural gas futures hit an intraday high of $7.213 early Thursday. Notably, the early production data from the Lower 48 trended significantly lower, giving bulls a piece of fundamental data to chew against a backdrop of broader weakness.
[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]
Bloomberg showed production below 100 Bcf/d. The Rockies appeared to be the culprits for the steepest declines, with the Haynesville Shale and Appalachia also seeing significant day/day losses.
However, the latest storage report from the U.S. Energy Information Administration (EIA) was a quick turnaround and sent futures prices crashing below the key $7.00 support level.
The EIA reported an above-normal drawdown of 81 billion cubic feet from natural gas storage inventory for the week ending Nov. 25.
The drawdown of 81 billion cubic feet was significantly larger than last year’s drawdown of 54 billion cubic feet and the five-year average drawdown of 34 billion cubic feet. And while the draw was generally in line with expectations, estimates ranged widely ahead of the EIA report.
A Bloomberg survey found drawdown estimates ranging from 72 billion cubic feet to 121 billion cubic feet, with a median decline of 82 billion cubic feet in inventory. A Reuters poll found estimates ranging from drawdowns of 72 Bcf to 92 Bcf, and a median of 84 Bcf. A the wall street journal poll, meanwhile, landed at an average withdrawal of 88 Bcf. Estimates ranged from decreases of 76 billion cubic feet to 99 billion cubic feet.
NGI modeled a pull of 89 Bcf.
Market watchers on energy cat Enelyst said the latest pullback was difficult to gauge given the long Thanksgiving weekend. Chief executive Het Shah said he considered the draw to be 3.1 billion cfd less per year after adjusting for weather.
Broken down by region, the East leads with an inventory decline of 26 billion cubic feet and the Midwest with a decline of 23 billion cubic feet, according to the EIA. South Central removed 19 billion cubic feet, including a 15 billion cubic foot drop from salt-free facilities and a 4 billion cubic foot increase from salts.
The Mountain and Pacific regions saw their inventories drop by 6 billion cubic feet, the EIA said. For the Pacific, the pullback caused inventories to fall 21.5% below five-year average levels.
Total working gas in storage as of Nov. 25 was 3.483 billion cubic feet, down 89 billion cubic feet from the same week last year and 86 billion cubic feet below the average over five years, according to the EIA.
Looking ahead to the next EIA report, Shah said his supply/demand flow model indicated a few days of net injections during the current reporting period ending Dec. 2. His preliminary estimate was of a shrinkage in the range of 10 to 20 billion cubic feet.
Few supply risks as the cold subsides
With the calendar swung to December, weather data remains at the center of gas market concerns and – despite the weakness caused by the EIA’s storage report – continued to impact prices on Thursday.
According to NatGasWeather, there have always been discrepancies between US and European weather patterns. The company said the latest Global Forecasting System (GFS) lost a few more Heating Degree Days (HDDs) at midday, while the European model was a little colder from Dec. 8 to 15 as weather coverage Below normal temperatures extended across the globe. northern and eastern United States.
As long as European data remains more than 10 hard drives cooler than the GFS from Dec. 8-15, NatGasWeather said that could keep natural gas prices from plunging too far. After all, there is no indication that the Freeport LNG terminal is about to resume liquefied natural gas exports; many expect further delays.
“The Dec. 8-14 pattern is currently just cold enough for a near-normal drawdown, but natural gas markets are apparently starting to get impatient awaiting the arrival of more daunting weather patterns,” the forecaster said. “Essentially, if late December and early January aren’t cold enough, there’s little chance that US supplies will be at risk this winter, barring a historically cold second half of January and February.”
EBW Analytics Group LLC noted that independent forecaster DTN’s Week 4 forecast suggested “widespread and long-lasting cold” sweeping the eastern United States and Texas around mid-December through the end of December. Although the data only reflects a modest increase in demand from week three, EBW said there is potential for a gain of 60 HDDs and a demand increase of 14 Bcf/d over the course of the week. the next two weeks.
“While the gas market is skeptical of forecasts beyond Day 10, the potential sustainability of the cold pattern – driven by significant blockage over Greenland and northern Canada – could catch the market off guard” , said Eli Rubin, principal analyst of EBW.
Meanwhile, traders late Thursday gained a little more confidence that a strike could be averted ahead of a Dec. 8 meeting between rail workers and management. The Senate on Thursday passed a bill aimed at avoiding a rail shutdown amid concerns about the economic danger posed by a strike. Notably, it would drastically reduce coal deliveries and boost demand for gas as a substitute.
The House passed the tentative rail deal on Wednesday. The bill was to be presented to President Biden for his final signature.
Rain, Snow Driving California Cash
Despite crushing weakness in the majority of U.S. cash markets, a pair of winter storms that swept across the West Coast continued to push prices there.
AccuWeather said the first storm had already brought the first measurable snowfall of the season to the Pacific Northwest this week, dumping a few feet of snow across the high country and burying the northern and central Sierra Nevadas.
At the same time, the storm was producing heavy rain in northern California. Several inches were expected, although the totals were expected to fade further south.
This weekend, a second storm was expected to fall south and could linger just off the coast of California.
“Some rain is expected to pivot into the San Francisco area on Saturday,” AccuWeather meteorologist Heather Zehr said. “More general rain could develop Sunday in northern and central California and possibly as far south as southern California.”
The extent and depth of mountain rain and snow the storm is rolling Sunday through Monday is still debatable at this early stage, according to AccuWeather. While the storm is not likely to bring an excessive amount of mountain rain and snowfall to Southern California, it may provide another increase in soil moisture, runoff into streams and reservoirs of the region, and more snow for the Sierra Nevada and Northern California in general. .
“Parts of the Sierra Nevada may pick up one to three feet of fresh snow from the second storm during the first part of next week,” AccuWeather said. “At the very least, there will be opportunities for rain and mountain snow over the next seven days for the drought-stricken state.”
The cold weather pattern lifted the Southern Border Avg. spot gas prices from $1.445 per day to $18.595 on average for Friday’s gas day. Further north, PG&E Citygate jumped $2,400 to $19,195.
For comparison, Henry Hub benchmark prices averaged just $6.215 after falling 58.5 cents on the day.
Wood Mackenzie noted that El Paso Natural Gas (EPNG) declared force majeure after its Lordsburg B compressor station suffered an equipment failure that rendered the station unavailable. EPNG said this would result in a decrease of 61,824 MMBtu/d in westbound operational capacity from Thursday until further notice. However, point and evening data showed an increase of approximately 10,000 MMBtu/d in operational capacity and an increase of approximately 25,000 MMBtu/d in scheduled capacity compared to the previous gas day. Given the restrictions and increased demand, next day gas prices in the upper teens have also spread to the desert southwest and the Rockies. El Paso S./N. Main Line Baja’s cash jumped $1,385 to $18,990, while Green River Northwest jumped $3,260 to $11,145.
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