Natural gas futures 2023

Natural gas bears extended their streak to four on Wednesday, slashing futures prices even further amid renewed disagreement in the models regarding a late-October weather system as well as lofty production. The November Nymex gas futures contract settled at $5.462/MMBtu, down 28.3 cents on the day. Notably, steep double-digit losses extended through all of 2023.

At A Glance:

• BREAKING: U.S. EIA reports 111 Bcf injection into storage
• Near-term demand falling short
• Cash prices crater as demand fades

Spot gas prices were sharply lower across the board as this week’s cold snap was seen thawing shortly. NGI’s Spot Gas National Avg. plummeted 53.5 cents to $5.210.

That futures prices have declined for four straight sessions is significant given much of the United States is in the middle of a cold snap that’s brought temperatures below freezing and led to heavy snowfall in some areas. Even Houston woke up to 40-degree lows on Wednesday morning.

Still, with the current chill expected to moderate beginning Friday, and production holding near recent highs despite fall season maintenance activities, traders saw no reason for a recovery. If anything, the next round of government inventory data may send prices down another few notches if the injection comes in near expectations.

Interestingly, the November contract was trading not far from Wednesday’s levels a year ago. Only at that time, prices were in the early stages of a sustained rally that eventually lifted futures to $10 in August.

This time around, there’s not much in the near-term outlook for bulls to hang their hat on.

After a string of four triple-digit builds, the Energy Information Administration (EIA) is poised to report another 100-plus Bcf addition to inventories. Ahead of the EIA report, scheduled to be released at 10:30 a.m. ET on Thursday, analyst estimates ranged widely amid robust production and stronger wind generation during the reference period ending Oct. 14.

Reuters polled 13 analysts, whose estimates ranged from injections of 95 Bcf to 118 Bcf, with a median forecast of 106 Bcf. Both Bloomberg and the Wall Street Journal had a tighter range of projections, with a median injection of 103 Bcf and an average injection of 102 Bcf, respectively.

A build near these levels would easily surpass the 91 Bcf injection recorded in the year-earlier period, as well as the five-year average of 73 Bcf.

Meanwhile, weather forecasts pointed to moderate weather ahead that could further pad stocks. Maxar’s Weather Desk said the six- to 10-day outlook leans slightly cooler in the central United States and in the West, while warmer in the eastern half through day nine. However, cooler air could arrive in the Midcontinent in the middle of the period.

“The models diverge for how much cooling may occur for then, lending lower confidence,” Maxar said.

Could Deficit Be Erased In November?

The 11- to 15-day period has undergone a mix of changes, according to the forecaster, by trending cooler early across the eastern half of the country but warmer in the central late in the period. The changes come with lower-than-usual confidence, however, given the model differences early in the period.

The overall pattern looks to remain influenced by a trough over the Gulf of Alaska and at times along the West Coast, bringing continued “unsettledness” to the Pacific Northwest. As a result, above-normal temperatures are expected in the Midcontinent, with the warmth set to become more widespread later in the forecast. Near-normal temperatures are expected along the East Coast, Maxar said.

EBW Analytics Group LLC said the fading cold spell could lead to significant weakening in spot market demand, particularly when accompanied by a forecast for tripling daily wind output in gas-heavy Texas. Still, with supportive physical demand doing little to avert a collapse at the front end of the Nymex futures curve in recent days, it is doubtful that softening spot demand would have any carryover effect for the November contract.

With extensive warmth possible into early November, heating degrees are set to fall sharply below historical levels. EBW noted that some of the warmest weather is concentrated over the Upper Midwest and Northeast, neutralizing the primary drivers of early-season heating demand.

Referencing weather forecaster DTN’s most likely forecast, the first week of November may feature less heating demand than the current storage week ending Oct. 20, EBW said. “Extended injections in November – depending on how long bearish weather holds – could effectively erase the outstanding storage deficit versus the five-year average by mid-month.”

Massive Cash Sell-Off

Spot gas prices were a sea of red midweek as a big change in the crisp weather pattern is expected beginning Friday.

AccuWeather said summerlike temperatures could return to some locations over the Plains and Midwest by Friday, while above-average temperatures could hit the East over the weekend.

A record low temperature of 16 degrees was recorded in Omaha, NE, Tuesday morning, with overnight temperatures remaining in the teens early Wednesday. However, the mercury is set to rise from here and likely will soar into the 80s by Sunday, challenging a more than 120-year-old record, according to the forecaster.

A similar shift in the weather pattern is expected over much of the Plains and Mississippi Valley through the weekend. AccuWeather said a temperature rebound of 50-70 degrees is expected over the Central states when comparing the lows of Monday and Tuesday to the forecast highs in the region this weekend.

A warm-up also is forecast for the East Coast, but a storm over the Atlantic is seen playing a role in how warm it becomes. A strong storm could knock temperatures down by 10-15 degrees or more with wind-swept rain, AccuWeather said. On the other hand, if the storm remains weak or mostly out at sea, the warming trend simply may be paused for a couple of days.

For now, temperatures are forecast to swing from the mid-50s to 70s, only about 5 degrees above normal, according to AccuWeather.

With heating loads set to decline, spot gas prices came tumbling down on Wednesday. Tenn Zone 6 200L next-day gas dropped 66.0 cents day/day to average $5.485. Transco Zone 6 NY fell 64.5 cents to average $5.130.

Lower prices were seen upstream in Appalachia, where Transco-Leidy Line cash plunged 70.0 cents day/day to average $5.000. Columbia Gas was down 51.5 cents to $4.910.

Prices throughout the Southeast and into Louisiana posted a wide range of losses from less than 30 cents to as much as 75 cents. The majority of losses in the Midwest and Midcontinent were in the 50-cent range. Joliet tumbled 65.5 cents to $5.120.

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