Natural Gas Forward Prices Retreat on Production Boom, Mild December Weather
Booming production numbers and the possibility of underwhelming December weather had natural gas prices reeling during the Nov. 16-21 period, with both regional forwards and Nymex futures posting sizable discounts.
In the face of record-level supply flooding the market, bulls seemed ready to throw in the towel on winter as fixed prices for December at benchmark Henry Hub plummeted 34.4 cents to exit the period at $2.851/MMBtu.
Perhaps tellingly, the entire winter strip finished the period below the psychological $3 mark, with January fixed prices at the national benchmark finishing at $2.997, NGI Forward Look data show.
Basis mark-ups at coastal demand hubs came down notably as traders continued to assess winter risks amid an increasingly comfortable looking supply buffer.
Algonquin Citygate January basis shed 68.8 cents for the period to drop to plus-$9.551. Cove Point finished at plus-$3.338 for January, off 42.2 cents.
Meanwhile, over on the West Coast, markets expressed some skepticism as to the prospect of a repeat of last winter’s price blowouts.
Northwest Sumas basis plunged $1.873 for December, ending at plus-$4.851. Farther south, SoCal Citygate basis exited the period at plus-$4.344, trimming its premium to the national benchmark by $1.373, Forward Look data show.
Early December Warmth
A stretch of unseasonably frigid conditions to close out the month of November failed to provide much uplift for prices, with traders instead finding evidence that the upcoming cold may prove short-lived.
After trending colder in recent runs, models continued to point to strong weather-driven demand for natural gas over the Thanksgiving weekend and extending through the week ahead, NatGasWeather said Wednesday.
However, demand was then expected to retreat back to “light levels Dec. 3-6 as most of the U.S. warms to near or above normal,” the firm said. “…The coming colder pattern would be more impressive if not for long-range weather maps favoring temperatures warming to near or above normal over most of the U.S.” in early December.
Maxar’s Weather Desk on Wednesday similarly highlighted a warmer-trending pattern for the 11- to 15-day period, from Dec. 2-6.
“Above normal temperatures span from Western Canada to the Midwest at the start of the period, when below normal temperatures linger” over the eastern third of the Lower 48, Maxar said. “By the mid to late period, temperatures are expected to be above normal for most of the West and Central, while temperatures are closer to normal in the East.”
The six- to 10-day featured colder than normal conditions spanning a large portion of the Lower 48 in Maxar’s updated outlook.
The forecaster highlighted “lows as cold as the low 20s in Chicago, low 30s in New York City and mid to upper 30s in parts of the South. The forecast trends small colder versus the previous from the eastern Midwest toward the Mid-Atlantic and Northeast.”
‘Torrential Supply Growth’
Traders also spent the Nov. 16-21 period trying to reckon with a material ramp-up in domestic production, evidenced by both proprietary estimates and a sizable high-side miss in the U.S. Energy Information Administration’s (EIA) reported storage injection for the week ending Nov. 10.
Estimates from Wood Mackenzie as of Wednesday showed domestic production clocking in at a recent seven-day average approaching 105 Bcf/d. The recent 30-day average of 104.2 Bcf/d represented an increase of 4.0 Bcf/d versus the year-earlier period, the firm’s estimates show.
Countering bearish narratives somewhat, EIA’s encore to a storage data double feature from the prior week revealed a 7 Bcf withdrawal from Lower 48 stockpiles for the period ending Nov. 17, on the tighter side of pre-report expectations for a small net injection.
December Nymex futures popped immediately as the latest EIA print reached trading desks. After hovering in the $2.820-2.850 area in the hour leading up to the noon ET storage release, the front month quickly climbed to around $2.900.
Ahead of the Thanksgiving holiday, natural gas futures had the potential to see a “pause in selling pressure” given the combination of a late November cold spell and “supportive technical factors,” according to EBW Analytics Group analyst Eli Rubin.
On the other hand, Rubin described an “overtly bearish” medium-term outlook, with supply gains implied by recent production estimates potentially not yet fully reflected in prices.
“While production growth continues to soar to new heights, the impacts of torrential supply growth, if sustained, remain underestimated by the market,” Rubin said. “Over the next 30 to 45 days, December weather may help stem the bleeding, or, if historical correlations to a warm El Niño bear out, could accelerate losses.”
With the market not yet making it through Thanksgiving, it remained “vastly premature” to write off winter, according to the analyst.
“Still, growing indicators suggest that an extended leg lower for spring 2024 Nymex futures below $2.50 is likely — and $2.00 gas should not be ruled out,” Rubin said.
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