Natural gas futures drop below $ 5 as mild weather prevails through early November

Natural gas futures extended their losses on Monday as cold weather remained largely absent from long-term forecasts. Despite rising global prices, the November Nymex gas futures contract plunged 42.1 cents to settle at $ 4.989 / MMBtu. December fell 36.4 cents to $ 5.236.

In one look :

  • Weather models do not show cold yet
  • Global factors less influencing US prices
  • 48 lower storage deficit expected to tighten

Spot gas prices also continued to decline, with NGI’s Spot Gas National Avg. sliding 15.5 cents to $ 4.955.

Although it is still weeks away from winter, even brief puffs of cold air have been hard to come by. Weather patterns over the weekend shifted, but overall maintained a bearish outlook until early November. A brief cold front is expected to sweep the Great Lakes and the northeast next weekend, but temperatures are expected to warm up fairly quickly.

“We suspected that there was more risk on the downside than on the upside, given a very poor climate and sufficient storage,” said Bespoke Weather Services.

However, the magnitude of Monday’s price change was “a bit surprising”, according to the firm, given that there was no significant weather change from Friday. Additionally, “we’re still only in the middle of the third of October at this point in the game.”

Certain global factors could have favored a rise in gas prices in the United States. European gas prices jumped on Monday after Russian gas giant Gazprom PJSC failed to book larger volumes at auction, saying November allocations reflect contract volumes. Without additional gas flows from Russia, the supply outlook in Europe remains worrying and likely means prices would need to rise even more than current levels in order to attract more liquefied natural gas (LNG) for the winter.

[Want to know how global LNG demand impacts North American fundamentals? To find out, subscribe to LNG Insight.]

Robert Yawger, director of Energy Futures, Mizuho Securities USA LLC, said this sets the stage for increased volatility in the coming weeks. “At least Gazprom should have obtained additional gas to sell in the spot market, most likely at a significant mark-up.”

Yawger noted that the real problem is the Russian-built Nord Stream 2 pipeline that carries gas to Germany. The pipeline is already flowing and volumes are expected to increase as the system goes into service.

However, significant regulatory hurdles remain for the ailing system. Chief among them is the need to comply with European Union rules requiring that ownership of transmission assets and natural gas supplies be separated. The rule could prove to be complicated for Gazprom’s integrated structure.

“Russian President Putin has said that if Europeans want more gas, all they have to do is approve the pipe,” Yawger said. “Until that happens, expect European gas prices to remain at extremely high levels.”

Are global issues important to US prices?

Despite the drama overseas, the offer on European gas prices did nothing to prevent Nymex futures from collapsing on Monday, with sales picking up after noon. The November contract fell to an intraday low of $ 4.962 before jumping a bit to settle not far above that level.

Bespoke said it was still too early to fully detach from the situation in Europe, but each warmer week in the United States brings the market closer to such detachment. The lower 48 supplies are “just not at risk the way they are over there” unless an extremely cold winter with sustained cold.

“In the absence of this, there is not much that global issues can have until we increase LNG export capacity,” Lovern said.

In addition, the longer the hot weather lasts, the better the condition of the storage inventory in the United States will be when the cold air arrives. While wind generation has proven to be a key indicator of how much gas is being injected into storage, the general outlook for mild weather bodes well for US supplies.

According to the Energy Information Administration (EIA), inventories as of October 8 stood at 3,369 Bcf, which is still 501 Bcf less than a year ago and 174 Bcf less than the five-year average.

Early estimates before the next EIA report indicate a build in the 80-90 Bcf range. NGI forecast a 95 billion cubic foot increase in storage. This compares to last year’s injection of 49 Bcf and the five-year average of 69 Bcf.

“With our trend favoring a warmer November at the moment, we are ultimately siding with downside price risks, knowing that there can still be wild swings,” Bespoke said.

Crashing spot prices

With little demand for heating or cooling across much of the country, spot gas prices continued to decline. There were a few exceptions, however, as cold weather persisted on the west coast. Temperatures are expected to be up to 15 degrees cooler than normal across much of California and Nevada, with cooler weather extending eastward from Tuesday.

The National Weather Service (NWS) said an area of ​​low pressure associated with a powerful elevation low is expected to move from the northern Grand Basin into the heart of Intermountain West on Monday evening. The storm system was expected to move east through the Rockies by Tuesday and eventually reach the Great Plains. Low elevations can expect rain showers, while mountainous areas could receive up to two feet of snow until Wednesday morning.

“There is no rest in the weather conditions in the west as another storm system approaching the northeast Pacific brings more coastal / valley rain and mountain snow to the north. western Pacific from Tuesday night through Wednesday, ”the NWS said.

The fresh air has pushed up prices throughout the region. The KRGT Rec Pool’s gas prices the next day jumped 25.0 cents to $ 5.485, while El Paso S. Mainline / N. Baja rose 34.5 cents to $ 5.710.

Prices at SoCal Citygate climbed $ 1,265 to an average of $ 6,915.

Elsewhere in the country, gasoline spot prices fell further from last week’s levels.

Henry Hub’s cash fell 38.5 cents to $ 5.075, and REX Zone 3 Delivered fell 33.0 cents to $ 4.740. Prices were also lower in the Appalachians and the Northeast, although the losses were not as significant. Transco Zone 6 NY lost 11.5 cents to $ 4.485.

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