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Natural gas futures erase initial gains and end in red on continuous heat; Money gatherings

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A cooler weekend forecast took natural gas futures above $ 4,000 / MMBtu at the start of Monday’s session. The gains, however, were not expected to last as subsequent weather data receded on the cold and pushed the January Nymex gas futures contract down 13.1 cents to $ 3.794. February slipped 12.8 cents to $ 3.761.

In one look :

  • More heat seen in weather models
  • Improvement of the offer’s image
  • Money rallies in California and the Rockies

Spot gas prices were higher at the start of the week despite generally mild conditions across the country. Gains were strongest in the west with a storm in the Pacific, which helped boost NGI’s national spot gas average. up 45.5 cents to $ 4.175.

After hinting that temperatures may finally get a bit more wintry, the weather patterns for the weekend turned a bit colder, showing enough cold in the model to bring demand closer to normal in the latter part of the month. From there, the key would be to see if the models evolve to a cooler model, according to Bespoke Weather Services. This is possible, the forecaster said, given a healthy blocking signature appearing in the North Atlantic Oscillation region. However, it depends a lot on the Pacific side, so Bespoke has a neutral opinion at the moment.

NatGasWeather said weather data is still driving demand higher this weekend and continues to show very cold air over western Canada from December 27 to 31, teasing the northern United States. Overall, the timing of domestic demand fluctuations and key features remain intact, and the Global Noon Forecast System has gained several heating degree days (DJs) from December 24-26 predicting a cold snap. slightly stronger in the northern United States, according to the forecaster.

“But what we think will be most important going forward is the amount of arctic air over Canada from December 28 to 31 capable of bleeding into the northern United States,” NatGasWeather said.

By then, national demand should be much weaker than normal for the current week, “by a lot”, according to the firm. Demand is expected to be so weak that next week’s government inventory report is expected to be 70 billion cubic feet lighter than normal.

EBW Analytics Group also noted the very moderate near-term outlook, warning that Wednesday and Thursday of this week could each have 10 heating degree days (HDD) below normal, limiting recovery attempts. As the market bridges short-term extreme heat and focuses on a colder end of December that could add 17 Bcf / d of weather-related demand in two weeks, a further rise in the Nymex winter contract appears to be. likely as a long-awaited relief the rally sets in.

“The magnitude of the gains, however, may be paltry compared to the loss of $ 1.79 / MMBtu in the first six contract trading sessions of January as the first month,” said Eli Rubin of EBW. “While it is likely that north of $ 4.00 / MMBtu, momentum could stagnate at the 200 day average at $ 4.17 / MMBtu. “

Meanwhile, the supply situation continues to improve, limiting the potential for sustaining massive gains. Early estimates from this week’s storage report indicate a pullback between 77 Bcf and 93 Bcf. NGI modeled a draft of 89 Bcf.

This would be compared with the withdrawal of 118 Bcf that the Energy Information Administration recorded during the period of last year and the average withdrawal of 114 Bcf over five years.

Looking ahead to the rest of the winter, Energy Aspects said about 200 billion cubic feet of gas could return to storage by the end of 1Q2022 if its winter residential / commercial demand estimate – which has dropped 1.3 billion cubic feet / d since early November – casseroles. This is in line with predictions in the company’s pre-winter weather scenarios, which predicted that a 5% warmer winter would increase storage by 350 billion cubic feet.

“We have already lost half of that demand due to weather impacts,” Energy Aspects said. “If the 1Q2022’s hard drives are in line with historical averages, the currently forecast moderate December would cause the entire heating season to be 2% warmer than normal (November achieved almost in line with normal hard drive levels ). “

However, the price response to December weather conditions is acting as a constraint on the level of inventory build-up at the end of March 2022, according to the consulting firm. Upward forecasts for electricity use absorbed 140 Bcf of lost weather demand from November 1 to the end of December, as spot prices collapsed.

Energy Aspects said gas consumption last week increased by 0.9 Bcf / d from the previous week, with thermal production reaching the full load growth of 3% week / week of the week. “If the low liquidity persists, gas will look increasingly attractive and increase its share of thermal generation to further limit the increase in end-of-season inventory projections.”

Meanwhile, export demand is expected to remain strong throughout the winter on the whole, mainly due to liquefied natural gas (LNG) exports, but there could be some fluctuations. For example, Wood Mackenzie said gas pipeline exports from the United States to Mexico (aka Mexports) are approaching the 5.7 Bcf / d mark, up 3% from November. This increase in volume broke the main downtrend that started in July and averaged 4% in monthly terms (MOM).

“The drop in border flows was in part due to a rainier-than-expected summer,” said Ricardo Falcon, analyst at Wood Mackenzie. “The rallying of US benchmarks also played a role, particularly from early September to mid-November, when near record highs were accompanied by high volatility.”

According to Wood Mackenzie, gas consumption for power generation, the largest component of demand in the Mexican market, has fallen by an average of 7% of DOM over this period. This month, however, electricity use rebounded 5% to just over 3.7 Bcf / d.

“The price effect is visible: a milder winter forecast pushes US benchmarks down, contributing to cyclical increases in gas production and therefore exports,” Falcon said.

According to the analyst, the gradual return of combined cycle and turbogas assets from shoulder season maintenance is also taken into account. The downside risk nevertheless remains considerable, in particular for the second half of December when the holidays should induce further weakness in aggregate demand.

“For now, the exposure of the Mexican gas market to a potential shock between supply and demand seems weaker than it was a few weeks ago,” Falcon said.

On the LNG front, the demand for feed gas recovered over the weekend to 12.4 Gcf / d, up 1.2 Gcf / d compared to the lows of last Tuesday. EBW noted that Sabine Pass could add another 0.5 Bcf / d of demand from current levels as the start of train 6 continues, “strengthening the fundamental end-of-month outlook.”

Rains, chills, winds – Oh my God

Spot gas prices climbed in all areas on Monday while electricity consumption remained strong despite moderate temperatures. The gains have been quite large at most locations in the United States, ranging between 20 and 30 cents at several key rate centers.

Henry Hub swung 29.0 cents to $ 3.960 on average for Tuesday’s gas day, and Katy climbed 23.0 cents to $ 3.760. El Paso Permian rose 32.0 cents to $ 3.555.

In the Midwest, Consumers Energy rose 21.0 cents to $ 3.770, while in the Midcontinent, Enable East climbed 25.0 cents to $ 3.605.

However, the price increases were significantly higher in the West as a disorderly storm system was observed in the region.

The National Weather Service (NWS) said an elongated mid-level low is currently carving southward along the California coast, propelled by a very strong 160-180 mph upper level jet that extends south of Alaska in stormy weather. This jet energy is expected to transfer to the mid-level low and accelerate across southern California on Tuesday evening before passing through the Colorado Rockies on Wednesday.

Along the way, heavy rain is expected in southern California as well as cold air in the Sierra Nevada, according to the forecaster. Heavy snow is forecast for the Great Basin and parts of the Northern Rockies (Idaho, southwestern Montana) with a possibility of 1 to 3 feet.

As the mid-level low sinks deeper into the Rockies and New Mexico, NWS said the winds will accelerate quickly. Far above normal temperatures are expected to follow, with high temperatures in the 1960s on the central plains and in the 1970s on the southern plains, nearing all-time highs and 25-35 degrees above sea level. normal. By midweek, mild temperatures – about 35 to 45 degrees above normal – are expected to reach the Midwest and southern plains.

“A vast majority of the records” are “expected” to be broken, with the potential for all-time record high temperatures in December in some cities, “NWS said.

For now, the messy storm system was providing a major boost to spot gas prices on the west coast. Next day’s gas northwest of South Green River climbed $ 1.095 to an average of $ 5.270. El Paso S. Mainline / N. Baja rose $ 2,220 to an average of $ 6,895 for delivery on Tuesday.

In California, the SoCal Border Avg. was up $ 1,770 to $ 6.375.


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