Natural gas futures on Thursday snapped a four-day losing streak, pushed higher by hints of colder weather, solid demand for U.S. exports and gains in European prices. The December Nymex contract settled at $5.149/MMBtu, up 26.9 cents day/day. January jumped 27.1 cents to $5.245.
NGI’s Spot Gas National Avg. snapped a five-day slump, gaining 18.0 cents to $4.595 as colder weather was poised to move across the East.
The American Global Forecast System (GFS) forecast pointed to ongoing mild weather across much of the Lower 48 in the back half of November – a key driver of downward pressure on futures in recent sessions. However, NatGasWeather noted, the European weather model gained a couple heating-degree days (HDD) overnight “and is now currently colder compared to the GFS by 6 HDD for late next week into the following week.”
At the same time, the firm said, supply uncertainty in Europe kindled fresh concerns about inadequate gas storage on the continent as winter weather starts to arrive there. Russia this week began sending more natural gas to Europe via pipeline to address shortages. Still, the volumes were light initially, and analysts have said that even if Russia ramps up, parts of Europe could still face supply challenges if the coming winter proves particularly harsh or protracted.
Those possibilities have fueled robust demand for U.S. exports of liquefied natural gas (LNG), adding bullish undercurrents for Nymex futures through much of 2021. LNG feed gas volumes topped 12 Bcf early this week, according to NGI estimates, and hovered near record levels. Feed gas demand was estimated at 11 Bcf on Thursday.
The global gas market “is still pretty tight, so with any shift toward colder weather, we will see a price reaction,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI.
To be sure, the colder tilt in the European model only put expectations on track for near-normal conditions later in November. While this would drive stronger demand, if it bears out, markets are likely to prove volatile until widespread freezing temperatures actually arrive, given variability in forecasts and the fact that weather is the principal driver during winter, Saal said.
“No rocket science here: It’s all about weather, and we just haven’t seen enough cold just yet,” he said.
Winter Gas Supply Woes?
Saal noted that the Energy Information Administration (EIA) on Wednesday reported a net 7 Bcf injection into U.S. gas stocks for the week ended Nov. 5. The modest print, released a day earlier than normal because of the Veterans Day holiday Thursday, indicated that the market is on the cusp of withdrawal season with inventories still below historic averages, Saal noted.
Total Lower 48 inventories stood at 3,618 Bcf at the close of last week, 3% below the 3,737 Bcf five-year average, according to EIA.
The latest storage result also marked the first time since the week ended Sept. 10 that the reported build lagged the five-year average injection rate. The 7 Bcf injection was well below the 26 Bcf five-year average for the period, suggesting rising demand last week.
However, with production climbing about 3 Bcf/d to around 95 Bcf/d so far in November, supplies are on the rise as well.
Bespoke Weather Services said markets could be choppy in coming days until the cloudy weather picture clears and markets have more confidence in the sustainability of recent output increases.
It “is difficult to be anything other than neutral in near-term sentiment, though we will need to see some actual cold show to ultimately avoid moving lower in prices,” Bespoke said.
Rystad Energy analysts also noted that the potential for winter coronavirus outbreaks and broad inflationary pressures lurk as wildcards for energy demand.
The U.S. Department of Labor on Wednesday said its consumer price index surged 6.2% in October from a year earlier, marking the biggest year/year increase since 1990 and the fifth straight month of inflation above 5%. The index includes energy, and the government report noted lofty increases in both oil and gas prices over the course of 2021. If prices climb too much, industrial demand could taper notably.
Energy markets are “torn” between the potential for tight balances this winter “and negative risks to demand,” said Rystad analyst Bjornar Tonhaugen.
Cash Crawls Back
Spot gas prices advanced for the first time in six sessions as demand strengthened in the Midwest and was poised to do so in the East after a lengthy stretch of mild November weather.
Cold air settled in over the Upper Midwest and Great Lakes Thursday, and it was expected to push into the eastern reaches of the country over the coming weekend, when strong national demand is projected, according to National Weather Service (NWS) data.
More gas buyers stepped into the physical market anticipating robust heating demand.
In the Midwest, Chicago Citygate jumped 28.5 cents day/day to average $4.735, while Joliet gained 27.0 cents to $4.705 and Dawn picked up 17.0 cents to $4.745.
“As a ripple in the jet stream moves from the eastern Great Lakes into the Northeast on Saturday, spotty showers are likely in much of the region,” AccuWeather said in a forecast Thursday. Temperatures throughout the East are forecast to be below normal by Sunday, the firm said.
Boston and New York City, for example, were both forecast to enjoy highs in the 60s Friday before chiller temperatures begin to arrive over the weekend.
"This cold shot will begin near the Arctic in northern Canada, with the polar air being dragged southward by repeated storms riding from the Canadian Prairies into the eastern U.S.," said AccuWeather Meteorologist Jake Sojda.
Ahead of the wintry blast, prices across the East climbed. Columbia Gas gained 28.5 cents to $4.085 and Cove Point advanced 28.0 cents to $4.430.Prices recovered across Texas as well, with El Paso Permian leading the charge, rising 37.5 cents to $4.415.
