Rebound in natural gas futures following lower production; Weak cash flow persists

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After falling sharply over the past two trading days, natural gas futures attempted to gain a foothold on Tuesday. A sharp drop in production contributed to the rebound, lifting the November Nymex gas futures contract 9.9 cents to $ 5.088 / MMBtu. December came in at $ 5.350, up 11.4 cents on the day.

Gas spot prices, however, remained firmly in the red amid a near-perfect temperature backdrop that is expected to last until November. Spot Gas National Avg from NGI. fell an additional 29.5 cents to $ 4.660.

After losing around 70 cents in the previous two sessions, and with weather patterns continuing to show slight short-term prospects, futures were on the verge of a third straight decline early on Tuesday. The November contract opened slightly below Monday’s close at $ 4.985 and then fell to an intraday low of $ 4.825. This is where the Quick Month found support, eventually coming back above $ 5,000.

In examining the technical factors at play, ICAP Technical Analysis focused on two price points. The company noted that $ 4.876 is the 50-day moving average; from there, $ 4,666 is another important level to watch out for.

“If the bulls conceive of a reversal from either of these levels, we will need to quickly assess the potential for a rally,” said analyst Brian Larose.

Bulls got ammunition in the latest production figures. Bloomberg data showed that production fell from over 2 Gcf / d day / day to slightly below 90 Gcf. Wood Mackenzie also estimated a drop in day-to-day production, but put the official tally at around 91.4 Bcf.

In both data sets, Texas and the New Mexico portion of the Permian Basin posted notable declines, with maintenance events contributing to some of the reductions.

For example, El Paso Natural Gas Pipeline (EPNG) began maintenance on Line 1300, limiting westbound flows. According to Wood Mackenzie, Whistler pipeline flows are down from around 265 MMcf / d to around 300 MMcf / d, compared to around 565 MMcf / d for Monday’s gas day.

East Texas production declined by approximately 300 MMcf / d along Natural Gas Pipeline Co. of America (NGPL) in the Panola area. NGPL has started maintenance on Segment 25, with firm transportation restrictions that may impact upstream flows, Wood Mackenzie said.

Meanwhile, Permian New Mexico production is down by about 275 million cubic feet per day due to EPNG’s 1300 line event. Work is also underway at the Eunice compressor station to limit the flow rates at ITEXNEUN reception. The 2000 line of the EPNG network also remains out of service following an explosion this summer.

Is there still a price increase?

With the drop in production likely temporary, the analyst team at Tudor, Pickering, Holt & Co. said beyond the continuing warm forecast, they saw limited fundamental catalysts for the recent sell-off. With varying forecasts in early November, the market appears to be reassessing the risk premium for winter in North America, even as Europe expects higher Russian supplies as heating demand picks up.

TPG analysts noted that demand for power generation in the Lower 48 tended to decline this week, but a closer look at the data revealed continued price support. The sector started the week at around 27 Bcf / d, this shoulder season’s low, but the figure is in line with the five-year average of around 27 Bcf / d despite robust prices. The share of gas in thermal production remains “solid” at 64% on Monday against an average of 61% in September, analysts said.

Residential / commercial demand is slightly above the five-year average since the start of the week at about 15.8 Bcf / d, compared to the five-year average of 15 Bcf / d, according to TPH. This is particularly noticeable since the weather has been generally mild across the country over the past month.

On the supply side, TPH said that aside from fluctuations in production, Canadian net imports have trended upward, reaching 5.8 Bcf / d in recent days. The increase in imports came even as Western Canadian receipts retreated from recent highs of 12.75 Bcf / d to 12 Bcf / d over the weekend.

“For the United States, we continue to forecast that the dry gas supply will increase to 94 Gcf / d in December,” the TPH team said. “Looking ahead to next year, the price outlook remains, in our opinion, subject to the vagaries of this winter’s weather, which could cause 1Q2022 to rise significantly and reevaluate the curve significantly. “

No more losses for money

Spot gas prices extended their losing streak another day as widespread highs of the ’60s to’ 80s did little to boost demand. The losses were most pronounced on the east and west coasts, with prices falling 50.0 cents or more in several places.

The sharp declines came even as the West Coast was in store for “a cyclone bomb beast” later this week. AccuWeather said the storm could bring destructive winds to the northwestern tip of Vancouver Island, British Columbia, as the storm intensifies rapidly mid-week. Wind gusts of 40-60 mph are expected.

The monster storm was to serve as an anchor or axle for other storms, according to AccuWeather. Lots of moisture and wind power are expected to “spin like spokes on a giant wheel,” with the Pacific coasts of the United States and Canada in the sights.

Each storm should have a distinct boost level, but likely won’t reach the same intensity as the Offshore Bomb Cyclone, according to AccuWeather. However, winds are expected to increase on the northwest coast through Thursday.

“Strong wind gusts of 40 to 50 mph can also be expected for coastal sections of Washington and Oregon from Wednesday to Thursday,” said Randy Adkins, AccuWeather meteorologist. But since the center of the bomb cyclone is expected to remain offshore, the wind damage will be relatively minor and will certainly be pale compared to the Thanksgiving week bomb cyclone of 2019. ”

Conditions are expected to remain stormy in the northwest coast until next week, possibly extending south across the southern California coast until next week.

West Coast silver merchants have turned a blind eye to the coming storm parade for the region. Northwest Wyoming Pool gas the next day fell 59.5 cents to $ 4.850 for Wednesday’s gas day, while Malin fell 61.5 cents to $ 4.845.

In Western Canada, NOVA / AECO C liquidity declined by a much more modest amount of 6.5 cents to C $ 4.690 / GJ.

Large losses were also observed on the east coast. Algonquin Citygate spot gas fell 67.0 cents to $ 4.230 for gas delivery on Wednesday.

The rest of the country generally posted declines of 15.0 to 30.0 cents on the day. The benchmark Henry Hub index averaged $ 4.775 for Wednesday’s gas day.


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