January Natural Gas Futures, Cash Prices Affected by Warmer Forecast, Oversupply Outlook

January natural gas futures slipped out of the gate on the first day of the month on Wednesday, tripping over a stubbornly warm forecast for early December and bears clinging to their views on oversupply a day ahead of the government’s weekly storage report.

At the first sight:

  • January Nymex down 3.3 cents
  • Spot prices are falling ahead of the warmer season
  • The El Niño data is flashing stronger

Nymex natural gas futures for January settled at $2.804/MMBtu, down 3.3 cents day-to-day. February fell 2.9 cents to $2,769.

Point gas NGI National avg. fell 57.5 cents to $3,170, dragged down by declines in eastern regions where the frigid winter was expected to ease by the weekend. The decline in prices was widespread across regions, with some exceptions such as West Texas. Permian Basin inventories rose again after being shut down by a gas leak earlier in the week and are expected to decline soon enlarged Permian Highway Pipeline LLC (PHP).

Production remained elevated on Wednesday three 106.0 Bcf/d days of production over the past week, but with different estimates than usual.

Bloomberg estimates production fell about 1 Bcf/d to 104.3 Bcf/d from Tuesday, mostly due to declines in the Appalachian, Haynesville Shale and Texas. Wood Mackenzie, meanwhile, said output rose more than 1 Bcf/d to 105.4 Bcf/d from Tuesday, driven by gains in the East and South Central regions.

Analysts at Mobius Risk Group said the “newly reported production record” added to it Influenced by El Niño weather settings. Overall weather model outputs continue to point to widespread warming since early December, they said.

In addition, sea surface temperatures, which define the El Niño pattern, increased to one of the strongest on record for this time of year, analysts said. This figure does not mean that El Niño conditions will “remain locked in,” or more importantly, that the current El Niño is expected to bring weather similar to the last significant El Niño winter of 2015-2016, according to Mobius.

Any hope for winter?

Independent meteorologist Corey Lefkof echoed that sentiment, saying he told his clients “suck it up, this is not Super El Niño 2015.” On the contrary, there are first indications that the weather could start to cool towards the end of December, Enelyst reported on the online platform.

A European model on Tuesday indicated a change in pattern leading into the Christmas week, and if the cooler trend takes hold, the market could be asking “what about Niño?” in about a month, according to Lefkof. “Everything tells me that it’s a matter of when, not if, the transition to a cooler regime may occur, but first we need to cool the source regions.”

But before that there are weather models solidly bearish by the second week of December. “As if the weather data just couldn’t get any warmer,” NatGasWeather said the US model lost another 6 heating degree days (HDD) overnight. By midday Wednesday, the firm said that model would run nearly 75 HDDs below normal over the next 16 days.

Both weather models “couldn’t have been much warmer for the December 2-12 period,” the firm added, so there is a risk that some demand will be added over time. Excess gas in storage is “likely to rise above 300 Bcf” if the period does not cool, the firm said.

The market is set to get another big update on Thursday when the US Energy Information Administration (EIA) prints last week’s storage data. NGI models a withdrawal of 9 Bcf for the week ending Nov. 24, which is well below last year’s withdrawal of 80 Bcf and the five-year average withdrawal of 44 Bcf.

Estimates provided to Reuters ranged from a withdrawal of 31 Bcf to an injection of 7 Bcf, with a median drawdown of 14 Bcf. A Bloomberg survey covered estimates for a draw of 17 Bcf to 10 Bcf, yielding an average pick of 9 Bcf. Average z The Wall Street JournalThe survey came up with a reduction of 13 Bcf.

This was reported by the EIA agency last week 7 selection Bcfwhich raised expectations of a modest injection for the week ending November 17, giving bulls a one-day boost.

The week ending Nov. 24 “was part of the holiday season, very mild weather and high production levels to contend with,” Mobius analysts said. The result of anything less than a 15 Bcf injection “would logically be considered an undersupplied market for the week,” given that the move a year ago was fueled by demand for 60 more HDDs, the analysts said. But with at least one more expansion of the storage glut still to come, such an outcome “may not be enough to ease the market’s selling pressure.”

EBW Analytics Group analyst Eli Rubin agreed with the bearishness for the markets. “The one-two combination of surging gas production and warm weather offers a steadfastly bearish medium-term outlook.”

But he argued that there are several factors that could lead to a suspension of sales in the short term.

“Thanksgiving and packing holidays raise the odds for another surprise EIA storage report,” Rubin said, in addition to January moving into the first month, technical indicators for natural gas futures “flashing oversold conditions” and short traders who they can choose to take the profits.

East Drags Spot Lower

Next-day cash prices fell in most regions on Wednesday, driven by a steep fall in the east ahead of expected lower heating demand through the weekend.

in the northeast, Algonquin City Gate cash prices fell $6,660 dd to average $3,495. in the Southeast, Transco Zone 5 down $4,970 to $3,430.

The decline was more modest in the Rocky Mountains, Appalachia, and Midwest regions, as well as in the south/east Texas-south Louisiana belt. Columbia Gas drop 13.0 cents to $2,220 a Houston Ship Channel fell 6.0 cents to $2,500.

The National Weather Service (NWS) said cold conditions are expected to ease in the Southeast and Midwest on Thursday, with highs 10 to 15 degrees warmer and closer to average. Areas of Appalachia and the Northeast should see highs in the 40s, compared to Wednesdays in the 20s and 30s, according to the NWS.

The forecaster left frost and freeze warnings in place for the Florida Panhandle and south Georgia as temperatures could drop near and below freezing early Thursday.

Meanwhile, cooler air is expected to sweep across the Rockies and Upper Midwest, dropping highs in the 20s and 30s on Thursday, according to NWS data.

Price gains, meanwhile, have been limited to the West and its main supply hubs in the Permian. Tea W.TX/SE NM Regional Avg. rose 42.5 cents to $2.045, boosted by gains in all its centers. Capacity restoration work on the PHP pipeline was completed thereafter escape was discovered on Sunday. A PHP pipeline was also planned to be added additional capacity of 0.55 Bcf/d on December 1.

Prices also rose in California. Southern Border, PG&Efor example, it rose 76.5 cents to $5,900.

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