Natural gas futures end seesaw session higher amid oversold conditions

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Related Articles 11/2/2009 December natural gas futures follow bearish fundamentals sharply down 11/2/2009 Mild weather to help pad already swollen natural gas storage 10/29/2009 EIA reports storage injection of 25 Bcf, within consensus 10/19/2009 WSI expects cold winter in eastern, south-central US

December natural gas futures settled higher Tuesday, Nov. 3, moving off session lows as bargain hunters took advantage of reduced prices after a 22.1-cent loss in the Monday session.

Buying back December gas futures, the market remains driven by uncertainty as fundamentals are mixed between bearish indicators including mild weather and swelling stocks and increasing bullishness as forecasts show some colder weather supporting the market higher.

Spanning $4.761 per MMBtu to $4.940 per MMBtu, the front month settled up 9.8 cents to $4.922 per MMBtu, holding below key support at $5 per MMBtu. The market spent much of the day drifting on either side of unchanged, with little definitive support in either direction, before taking off to the upside amid oversold conditions.

Natural gas remains anchored to overall bearish fundamentals as the fall season has thus far brought mild weather to key heat-consuming markets, preserving the glut of natural gas in underground storage. However, weather forecasts remain sketchy into the winter heating season as below-average temperatures are seen creeping into heating markets in near-term outlooks, while forecasters are anticipating a colder-than-average winter particularly for the Southeast and the central U.S.

The National Weather Service calls for the upcoming six- to 10-day period to bring average temperatures across much of the U.S. A large swath of above-average weather is forecast for the bulk of the country's midsection, while a few areas in the Northeast and Texas should see below-average conditions. The eight- to 14-day outlook shows the swath of above-average conditions in the central U.S. narrowing, with seasonal average weather moving in from the East and South. Coastal areas in the eastern and southern U.S. will see below-average weather, the NWS said.

While the milder weather in the near-term outlooks are keeping a lid on natural gas prices, weather could support additional gains down the road, as WSI Corp. sees the period from November to January averaging cooler than normal in the eastern and south-central U.S., with above-normal temperatures common across the western and north-central regions of the country. WSI also sees the December-to-February period bringing below-normal temperatures across the eastern and the southern U.S., with above-normal temperatures eyed for the northwestern half of the country.

The impact of weather on the storage situation adds another near-term weight for the markets as the injection season continues, with weekly stock builds augmenting an already-abundant supply of natural gas in underground storage facilities. Swollen storage facilities, however, are impeding the ability for sizeable additions to weekly storage numbers, as producers are finding capacity limited on pipelines and into storage, preventing any major jumps in stocks in the last few weeks of the official injection season.

However, expectations for U.S. Energy Information Administration data to be released Thursday, Nov. 5, suggest a build near 30 Bcf in the week ending Oct. 30, compared with a 29-Bcf five-year average injection and a 23-Bcf year-ago build for this week. This would be the first time in eight weeks that the weekly build outpaced the five-year average.

As of the most recent Oct. 29 report, the 25-Bcf injection for the week ended Oct. 23 lifted working gas levels to 3,759 Bcf — 373 Bcf above year-ago levels and 414 Bcf above the five-year average for the same week, but down from a five-year average surplus peak of 517 Bcf on Aug. 7.

With the possibility of two more injections in the weeks following the Nov. 5 report, the EIA last projected Oct. 6 that working natural gas stocks could reach 3,850 Bcf at the end of the injection season, about 285 Bcf above the previous record of 3,565 Bcf reported for the end of October 2007, though this season-ending estimate will most likely be trimmed in the EIA's next Short-term Energy Outlook scheduled for release Nov. 10.

Technically, support for December natural gas is found near $4.75 and $4.50, while resistance is marked near $5, $5.25 and $5.50.

Cash Market

Cash natural gas deals were done in mixed directions Tuesday, Nov. 3. Weather provided an argument for both gains and losses as mild conditions pressed values, while cooler weather in key heating regions added some support. Vacillating natural gas futures also provided a mixed signal for cash gas deals after a day of sharp losses Monday gave way to some bargain hunting that drove modest gains in the Tuesday session.

Cash gas deals done at the benchmark Henry Hub in Louisiana moved slightly higher with modest demand and signs of strength in natural gas futures, but gains were limited to less than a penny after a sharp more-than 21-cent advance in the prior session. Deals for the Wednesday product moved from the mid-$4.20s to low $4.50s, up less than a penny to an index near $4.33. The modest gains combined with a boost in natural gas futures to $4.922 per MMBtu, up 9.8 cents on the day, to keep futures at a hefty near 60-cent premium to cash.

Elsewhere in the producing region, for-Wednesday product prices barely moved Tuesday, lacking impetus for change as weather remains mild, demand lackluster and supply healthy. At Transco 65, prices inched less than a penny down to hold an index near $4.38, while Columbia Gulf Mainline cash gas deals averaged up by less than a penny on the day to an index at $4.37. To the south and east, Florida Zone 3 traded in a spread from the low $4.40s to the low $4.50s, for a gain of just over a penny to an average around $4.48.

In the Northeast, some chilly weather allowed for extended gains at key delivery points across the region in the Tuesday-for-Wednesday trading session. Natural gas futures' modest boost also gave support as Transco Zone 6-New York deals lifted more than 6 cents on the day to trade at an average near $4.90, while TETCO M3 gained nearly 3 cents to an index near $4.82. At the Canadian border, lingering cold weather combined with increased business load to win the Iroquois-Waddington product 13 cents on the day to a range from the upper $4.70s to the low $4.90s and an index at $4.82.

In the upper Midwest, Nov. 3 deals for gas delivery Nov. 4 were done lower after significant gains in the prior session. Correcting after gains amid mild weather, deals at Chicago city gate, were down about 1.5 cents on the day at an index around $4.50. At Northern Demarcation, cash deals were less than a penny, down to an average at around $4.51. To the south, Panhandle posted a loss of about 6 cents to about $4.14.

In Texas, with demand outlooks slipping, Tuesday gas deals done for Wednesday delivery reversed off prior-day gains to drive sharply lower in correction. At Waha, deals were done at an average of around $4.26 for a loss of about 5 cents on the day, while El Paso Permian saw an average around $4.19, down about 15 cents on the day. In the San Juan valley of New Mexico, El Paso-Blanco fell nearly 12 cents to trade at an index near $4.14.

In the Rockies, deals at key delivery points across the region also reversed lower after a day of gains in the week's opening session. Mild weather is limiting demand for natural gas in the region, at the same time as futures' retreat provided additional support for decline. In Colorado, CIG cash deals were lower by about 15 cents for an index around $3.95. Meanwhile, at the Opal hub in Wyoming, spot gas traded at an index around $3.93, for a loss of about 22 cents on the day.

Cash deals across the West were done mixed, with gains modest and losses substantial on the back of warm weather and limited demand. In the Southwest, spot gas deals at the Southern California Border-Topock location were done at an average near $4.39, posting a loss of about 14 cents as above-seasonal-average temperatures eased. In Northern California, Pacific Gas & Electric City-Gate spot gas showed a modest 4-cent gain to $4.79. In the Northwest, at Malin, values were also modestly up, gaining less than a penny to an index around $4.41.