Natural Gas Forwards Trudge Through Shoulder Season Lull as Focus Turns to Winter Risks
Regional natural gas forwards were mixed during the Sept. 21-27 period as traders gauged winter upside potential against a backdrop of soft shoulder season fundamentals, NGI’s Forward Look data show.
November fixed prices at Henry Hub eased 2.2 cents to end at $2.902/MMBtu. Fixed price discounts for November delivery were common throughout the Lower 48, though a number of hubs finished in modestly positive territory for the period.
The Sept. 21-27 period brought mixed trends in the underlying fundamentals, Wood Mackenzie estimates show. On the demand side, LNG feed gas flows dipped during the week, dropping to 11.1 Bcf/d on Tuesday (Sept. 26), according to the firm.
Meanwhile, production as of Thursday had maintained a recent seven-day average of 101.7 Bcf/d, with Wood Mackenzie analysts observing some maintenance-related impacts to domestic output during the period.
West’s Winter Jitters
Western markets, perhaps jittery in light of last winter’s price spikes, saw basis strengthening for the peak winter contracts during the Sept. 21-27 trading period. However, November basis moves diverged from contracts further along the curve.
SoCal Citygate November basis gained just 3.9 cents to finish at plus-$3.645, while Northwest Sumas November basis ended at plus-$3.540, a 14.3-cent selloff week/week.
By contrast, Northwest Sumas basis shot up 41.5 cents for January delivery, ending at plus-$7.840. SoCal Citygate January basis similarly jumped to plus-$5.465, a 33.9-cent swing higher.
The increased risk baked into the forward curve out West makes sense given what transpired during the 2022/23 winter, when a perfect storm of factors sent regional prices soaring.
Daily average physical prices at SoCal Citygate approached $50 in December 2022 and traded well into the teens or higher for all of December and most of January, Daily GPI historical data show.
Further, the elevated winter 2022 pricing was not isolated to Southern California, a market prone to supply constraints. Malin daily average spot prices peaked at $55.380 in late December 2022, with Northwest Sumas also cresting the $50 mark at the same time, according to Daily GPI data.
New England Premiums Ease
Meanwhile, with some temperate shoulder season weather on tap, and with forecasts yet to offer convincing signs of early season cold, New England basis premiums moderated across the winter strip.
Algonquin Citygate February basis ended the Sept. 21-27 period at plus-$11.234, down 29.7 cents week/week. Traders priced in a bit more winter risk farther south in the Mid-Atlantic, where Cove Point February basis picked up 15.5 cents for the period to finish at plus-$2.773.
First Cold Snap?
The American weather model trended colder overnight ahead of Thursday’s session, and the model maintained the added heating degree days in its midday run, according to NatGasWeather.
For the back half of the 15-day outlook, the model showed a “weather system sweeping across the Midwest and Northeast with lows of 30s,” the firm said. The European model “also sees this system but isn’t quite as cold or as deep into the U.S. with it. This does need close watching since the prospects of the first colder than normal system could be a catalyst for prices even though it’s still very early in the season” and would have “minimal” demand impacts.
Should the European model trend colder in subsequent runs, “the natural gas markets might notice,” NatGasWeather added.
The October Nymex contract rolled off the board on a high note Wednesday, rallying 10.8 cents in its final day of trading. November went on to add another 4.6 cents to settle at $2.945 Thursday, well off the intraday lows.
The market appeared unphased by Thursday’s U.S. Energy Information Administration (EIA) report, a 90 Bcf injection for the week ending Sept. 22. It was a somewhat larger-than-average build that essentially confirmed market expectations.
Total Lower 48 working gas in underground storage stood at 3,359 Bcf as of Sept. 22, 189 Bcf (plus 6.0%) higher than the five-year average. The latest report marked the first week/week increase in the surplus in nearly three months.
Though the inventory surplus shrank throughout July, August and much of September, a reversal of “bullish summer tailwinds” has the potential to increase “downward pressure on key support” for November prices, EBW Analytics Group analyst Eli Rubin said in a recent research note.
Still, October could go on to deliver a bullish denouement after a lackluster opening act, according to the analyst.
“While the front half of October may remain weak, the back half of the month could experience major catalysts reversing in the bullish direction — including a marked weather shift” away from “blistering warmth” to chilly conditions, Rubin said.
Weather models appeared evenly divided “between enduring, bearish warmth and a stark, market-moving pattern shift,” the analyst said. Recent forecasting from DTN “leans into the Madden Julian Oscillation progressing” in a way that would “drive a trough along the eastern U.S., while also citing east-based el Niños as generally featuring a cold shot during October.”
A chillier pattern shift, if realized, “could quickly herald an end to a bearish shoulder season and refocus the market on upside risks into early winter,” Rubin added.
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