Natural Gas Forward Prices Plummeting Amid Ample Storage Builds, Mild Temps

By Jeremiah Shelor  October 20, 2022 naturalgasintel.com

Buckling under the weight of one triple-digit shoulder season storage injection after another, natural gas forwards sold off sharply during the Oct. 13-19 trading period, NGI’s Forward Look data show.

Regional forwards price action from coast to coast reflected a market reconsidering the extent of winter upside risks in light of a rapidly shrinking inventory deficit. Fixed prices for November delivery at benchmark Henry Hub sank 97.3 cents to $5.467/MMBtu for the period. 

Numerous Mid-Atlantic and Northeast hubs saw losses of $1-plus. Algonquin Citygate November fixed prices plummeted $2.562 to $7.584. Basis differentials at the New England hub shed $1.589 week/week to end at plus-$2.122.

Fixed prices at Transco Zone 5 dropped $1.408 to $6.043 for November delivery. Front-month basis there shed 43.5 cents to end at a 58.1-cent premium to the national benchmark.

Meanwhile, the Oct. 13-19 period saw losses continue to mount for Nymex futures, with a run of huge storage injections, compounded by the absence of any compelling signs of early winter weather, putting bulls on the defensive. 

Wrapping up a fifth straight session in the red, the November Nymex contract dropped 10.4 cents to settle at $5.358 Thursday. 

Futures ‘In Freefall’

Nymex natural gas futures have been “in freefall,” EBW Analytics Group analyst Eli Rubin observed Thursday.

Still, “oversold conditions and seasonal fundamentals continue to offer upside risks over the next 30 to 45 days — if more supportive early-winter weather arrives,” the analyst added.

However, bulls hoping to see that winter weather actually arrive were still waiting Thursday, based on the latest forecasting from NatGasWeather.

“The weather pattern for the start of November is still expected to be near to warmer than normal over most of the U.S. for light national demand,” NatGasWeather said. “The pattern would favor temperatures being stratified from north to south, with highs of 40s to 60s across the northern U.S. and 60s to 80s across the southern U.S.

“It will take much colder weather maps for bearish weather headwinds to end,” the firm added. Mid-November represents “the next best opportunity” for more impressive cold to show up in the outlook.

Thursday saw the Energy Information Administration (EIA) report a 111 Bcf injection into U.S. natural gas stocks during the week ended Oct. 14. That marked the fifth straight triple-digit injection and cut the deficit to the five-year average to 183 Bcf, or minus-5.2%. Lower 48 stockpiles stood at 3,342 Bcf as of Oct. 14, according to EIA.

Estimates suggest strong domestic production levels have played a role in the recent run of outsized builds.

“Haynesville pipeline samples have increased by around 200 MMcf/d so far in October, lending support to our bullish ArkLaTex supply outlook,” analysts at East Daley Analytics said in a recent research note.

The firm said it expects Haynesville Shale volumes to ramp up by roughly 430 MMcf/d for the September to December time frame.

“In the Northeast, we model an even larger supply ramp of around 922 MMcf/d between September and December,” the East Daley analysts said. “Our forecast is in line with recent winters, which typically see production grow to capture higher regional demand and prices. We anticipate Northeast samples start trending upwards in late October/early November.

Stronger Basis In Western Canada

As for notable regional basis trends during the Oct. 13-19 period, producing hubs in West Texas and Western Canada fared better than the North American market overall.

Perhaps benefitting from the transition into winter heating, or from the steep declines at Henry Hub, NOVA/AECO C November basis strengthened 74.5 cents week/week to end within $1.356 of the national benchmark.

Meanwhile, in the Permian Basin, Waha basis rose 45.4 cents for November to end at minus-$2.579, while El Paso Permian finished at a $2.479 discount to the Hub, a 44.7-cent swing higher week/week.

The latest rig numbers from Enverus showed activity slowing across the United States, including a two-rig decline in the Permian, which dropped its total to 329 rigs for the period ended Oct. 20. 

“While the Gulf Coast and Williston Basin were flat at 119 and 42 rigs, respectively, all other major plays saw weekly declines,” the firm said. 

The Appalachian and Denver Julesburg basins each posted one-rig declines for the period, ending with 56 and 22 rigs, respectively, while the Anadarko Basin dropped four rigs to lower its tally to 80, according to Enverus.

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