November Natural Gas Futures Rally Toward Expiration, But Flip Negative Late; A jump in spot prices

Natural gas futures rose for the fifth time in as many sessions on Friday, boosted by the first extended wintry weather of the season, a bullish result from storage and trader positioning ahead of the first-month contract expiration. It hit $3,400/MMBtu during the day.

At the first sight:

  • Fast month bull show fiddling
  • A large-scale northern cold appears
  • Production is holding below 102 Bcf/d

Late-session profit-taking finally broke the bull run. Ahead of the books’ close, Nymex November gas futures lost 5.0 cents day/day to settle at $3,164 on Friday. Nevertheless, compared to the end of the previous week, it gained 9%.

The December contract, which takes over the first part of the curve on Monday, gained six-tenths of a cent to settle at $3,483 on Friday.

Point gas NGI National avg. rebounded 43.5 cents higher to $2,895, extending a weekly rally as cold air in the Rockies spread into the Midwest and threatened to push into the Northeast next week.

NatGasWeather noted that “the first frosty shot of the season” took hold in the north during the trading week. As it spread across the center of the country and eastward, “strong” demand was on the cards for the final days of October and early next month.

A “freezing system” that has accumulated over the Rockies and Northern Plains “will break free and sweep across the rest of the northern and central US from Sunday into Thursday,” NatGasWeather added. It could also lead to the “first light frost of the season over the Rockies” given the freezing temperatures in the region.

While output hit a record high of around 104 Bcf/d at the start of last trading week, it fell slightly to below 102 Bcf/d on Friday, according to Bloomberg and Wood Mackenzie estimates. Maintenance work in the Permian Basin and the Northeast reduced production late in the week.

Analysts also said speculators held net short positions heading into the final week of the November contract. As winter approaches, more of them have made pre-expiry adjustments, giving futures further support in early trading. “Speculators have been bearish, but they’ve been known to change their minds about the market very quickly,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI.

Eli Rubin, senior analyst at EBW Analytics Group, agreed.

The initial “surge” in prices likely contained “short-term covering elements” because “there is a larger fundamental reason for the rise.”

Rubin also noted that Thursday’s government inventory “surprise” report fueled bullish sentiment that carried over into Friday. The fast month rose more than 20 cents on Thursday after the US Energy Information Administration (EIA) reported. injection of 74 Bcf to storage for the week ending October 20. This was below expectations and historical averages.

Before going to press, injection estimates hovered around 79 Bcf. The five-year average increase was 66 Bcf, while the year-earlier build was 61 Bcf.

The cold front that moved down from Canada could, if it persists into November, “bring an abrupt end to the injection season,” Rubin said. “Although the cold may fade in the western two-thirds of the US, lingering cold air masses could spread east and south to push moderately cool conditions east of the Mississippi River by mid-November.”

Analysts at The Schork Report sounded similar on Friday. The injection season “turned on an exit ramp,” they said.

However, analysts added that production remains elevated and stocks in warehouses appear to be sufficient for a normal winter. The latest injection lifted inventories to 3,700 Bcf, putting underground reserves 5% above the five-year average.

Early polls for the week ending Oct. 27 pointed to at least one more injection. Preliminary estimates provided to Reuters ranged from injections of 71 bcf to 88 bcf, with an average increase of 81 bcf. That compares with an injection of 99 Bcf a year earlier and a five-year average of 57 Bcf.

Analyst at Tudor, Pickering, Holt & Co. Matt Portillo estimated the recent weekly domestic production average at 102.4 Bcf/d. Given the strength of the output, he modeled a build of 80 Bcf for the next EIA print.

Cruise Cash Prizes

Spot gas prices rose on Friday as they did in every other session of the week.

A northern winter hovered over the Mountain West, but also expanded into the Midwest, supporting upward momentum.

Opal in the Rockies rose $1,095 day/day to an average of $5,435, while Northwest Wyoming Pool gained 96.0 cents to $5,490.

Northwestern Sumas jumped 34.5 cents to $6,225.

Meanwhile, the Midwest regional average rose more than 50 cents Chicago Citygate up 55.5 cents to $2,915.

Looking ahead, NatGasWeather forecasts on Friday showed that the period between November 4 and 10 is “still not cool enough to be considered bullish”. The firm said national warming days are expected to fall below normal during this period. However, it said the outlook had shifted cooler than previous forecasts and there was a possibility that the frigid northern conditions would last longer than expected.

The system that hit the Midwest could also move further south, bringing freezing lows to parts of Texas. It also headed east, projecting onto the Great Lakes canvas and eventually northeast, NatGasWeather said.

Friday in New England, PNGTS advanced 66.5 cents to $3,010.

AccuWeather forecasters said Friday that wintry flurries have already brought heavy snowfall to some areas and slushy, cold rain to others, with a “winter precipitation zone” stretching from the interior Northwest across the Rockies and northern Plains. It was expected to move across the Midwest over the weekend.

“As the pattern develops, many areas over the Plains and Midwest will experience the coldest air of the season so far,” AccuWeather Meteorologist Dave Dombek said.

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