- An abrupt shift from early-week cold to mid- and late-week warmth has some in the trade worried
- Gas bulls fend off speculation over temperature at this point, saying winter hasn’t even begun
- Longs stick to mid-$3 pricing, dismissing talk that the current winter could be as warm as the last one
- The EIA’s scheduled miss of the Nov. 9 gas storage report was as big a talk as the weather
It’s Halloween week and all of the United States should be shuddering from both the spookfest and the weather. And it is actually scary for some natural gas bulls because the weather could turn out to be warmer than it ought to be.
The quick departure of this week’s blast of cold air across the northern half of the country and down into its midsection — which initially boosted heating demand at the start of the winter withdrawal season from natural gas storage — has surprised longs in the game.
Halloween week is usually a boneshaker as frosty winds rattle both the living and the make-believe skeletons they hang outside their homes. Not quite this year.
In fact, the shudder among some gas bulls is that the early insight into winter 2023-24 is beginning to look and feel like 2022-23, which was one of the warmest in 127 years.
Shifting Temperatures … And The EIA’s Houdini Act
But even scarier to some is that the Energy Information Administration, or EIA — which religiously publishes every Thursday natural gas storage data that indicates production and demand — will do a Houdini act and give the next week a pass after today’s report. The agency said on its website:
“EIA will delay its scheduled data releases November 8-10, 2023, to complete a planned systems upgrade.
We will continue collecting energy data from survey respondents and will resume our regular publishing schedule on November 13.”
The scheduled weekly miss on gas data from the government is so unthinkable to some in the trade that they were ruminating in a lighter vein on how to fill their time during that week.
John Sodergreen — who authors a trade publication on gas called ‘The Desk’ — wrote:
“So, what’s a fella to do next week on Thursday? We asked folks in the natty gas channel on Enelyst what their new plans are for the BIG DAY, and many said ‘drinking early’ or some equivalent.
A few mentioned they’d reorganize their crypto portfolio that day. One noted a “day trip to nirvana” (still waiting for a clarification) and others said simply reworking pipe and flow models “that have otherwise failed me this season ... ”
On a more serious note, he said:
“We were told, however, by insiders, that the wait will be worth it”.
This is because, on Nov. 16, there will be a double version of the Weekly Natural Gas Storage Report to make up for the missed run on Nov. 9.
Sodergreen particularly cited power burn numbers for gas from data provider ResComm, “which should be almost off the charts”, he said, when they are finally published.
Arguing Over Warm Temperature? Winter Hasn’t Even Begun, Some Say
Back to the weather, a more serious debate on the temperature has also emerged, with some arguing that the winter season hasn’t even officially begun.
Even the most avowed gas bear would think twice about betting on a repeat of the 2022-23 warm cycle, much like the adage that lightning never strikes the same place twice.
For the same reason, gas bulls are sticking to bullish mid-$3 pricing, they add.
Even so, this week’s abrupt balming of temperatures remains a source of concern to some. According to a NatGasWeather reading carried by industry portal naturalgasintel.com, the cold is expected to ease and by the weekend, much of the country should be enjoying warmer weather.
Into next week, in particular, the northern United States is now modeling warmer, accounting for much of the demand losses, the forecaster added.
That explains the slump in natural gas futures on the New York Mercantile Exchange’s Henry Hub early Wednesday, as the market reversed much of the 22-cent jump from Tuesday before bouncing and settling lower to start the November trade-off on wobbly footing.
The shift in trading came as weather forecasts shaved some demand expectations with the winter’s first decent cold shot across the Lower 48 US states set to ease by the weekend.
For granularity, here’s a day-by-day play of how it went: Forecasts on Monday called for milder conditions in the first half of November.
This view held until early Tuesday, when models added a huge pulse of demand for the Midwest and Northeast for Nov. 9-11, which helped spark the rally in futures. But by Wednesday, the weather models shed all the demand gains of the past few days.
A mix of morning frost and freezing cold would persist across the South, Northeast, and much of the Midwest early Thursday, AccuWeather senior meteorologist Bill Deger said.
But the cold spell is expected to quickly give way to a warm-up across the South Central, Southeast, and Northeast Thursday to set up the weekend for above-normal temperatures, according to Deger.
Milder weather was forecast from California to Colorado and the Upper Midwest, he said.
Adds NatGasWeather:
“The Nov. 4-15 pattern will be to the bearish side with most days showing well below-normal heating degree days besides near normal Nov. 9-11.”
The weekend warm-up could halve heating demand, shedding 5.1 billion cubic feet per day of weather-driven gas use, according to EBW Analytics Group senior analyst Eli Rubin.
“Although near-term momentum could extend, the December natural gas contract may be unable to sustain current levels absent a renewed cold push,” he said.
Besides weather, producers’ hedging could act as a weight on futures into early 2024, Rubin added. Haynesville pure-play producer Comstock Resources (NYSE:CRK) said Tuesday it wants to hedge at least 40% of its 2024 output “in a perfect world” scenario, up from 22% so far.
“In our view, other producers likely occupy a similar hedging outlook, suggesting further downward pressure in coming months as the natural gas sellers layer on protection,” Rubin said.
Meanwhile, LNG feed gas volumes remain strong, ticking up to around 14.5 dekatherm per day, or dth/d, for Wednesday, above the seven-day average of around 13.9 dth/d, according to naturalgasintel’s own LNG Export Tracker.
Gas production, meanwhile, slowed to under 101.5 bcf per day on Wednesday, industry forecaster Wood Mackenzie estimated. That pace is off-peak readings last week, but the seven-day trend is flat week/week at an average of 102.1 bcf per day, the firm said.
Higher Than Normal Gas Build Expected in Today’s EIA Report
So, what could this week’s storage report from the EIA look like?
Reuters, in a poll of Wall Street energy forecasters, said on Wednesday their consensus showed US utilities likely added an above-average 80 bcf of natural gas into storage last week as mild weather kept heating demand low.
That compares with the 99 bcf injected during the same week a year ago and the five-year (2018-2022) average increase of 57 bcf for this time of year.
In the week ended Oct. 20, utilities added 74 bcf of gas into storage.
The forecast for the week ended Oct. 27 would lift stockpiles to 3.780 trillion cubic feet (tcf), 8.4% above the same week a year ago and 5.8% above the five-year average.
There were 64 total degree days, or TDDs, last week compared with a 30-year normal of 85 TDDs for the period.
TDDs measure the number of degrees a day's average temperature is above or below 65 degrees Fahrenheit (18 Celsius) to estimate demand to cool or heat homes and businesses.
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Disclaimer: The aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.