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December natural gas futures continue to fall as holiday, expiration approach

NYMEX December natural gas future were lower Tuesday, Nov. 21, weighed down by a slate of bearish fundamentals heading into the long Thanksgiving-holiday weekend and ahead of options expiration at the close of business Monday, Nov. 27, and the contract's roll off the board Nov. 28. The contract closed the session 3.0 cents lower at $3.017/MMBtu.

Weather forecasts for the midrange period signal losses as they outline a warming trend with only the eastern quarter of the U.S. expected to see below-average temperatures over the six- to 10-day period and only a portion of the Northwest expected to see below-average temperatures in the eight- to 14-day period.

SNL Image

SNL Image

Above-average temperatures in the major heat-consuming regions into early December are capping the upside potential for the market as natural gas inventories should draw down at a slower pace during the onset of what is typically the period of peak demand, and thus, peak withdrawal.

Natural gas inventories began drawing lower in the week to Nov. 10, as the U.S. Energy Information Administration storage data outlined an 18-Bcf withdrawal from stocks for the week that was above market consensus that called for a 15-Bcf pull and compared with respective year-ago and five-year average injections of 34 Bcf and 12 Bcf.

The first pull of the season took total working gas inventories to 3,772 Bcf, or 271 Bcf below the year-ago level and 101 Bcf below the five-year average storage level of 3,873 Bcf.

Analysts and traders surveyed ahead of the release of the upcoming natural gas storage report for the week to Nov. 17 anticipate a 48-Bcf to 63-Bcf withdrawal, with the consensus expectation being a storage withdrawal of 54 Bcf. That compares to the 2-Bcf injection reported for the corresponding week in 2016 and the 26-Bcf five-year-average withdrawal.

A pull at consensus would result in a total working gas supply of 3,718 Bcf, or 129 Bcf below the five-year average and 327 Bcf below the year-ago level.

Despite the widening deficits, the longer-range weather views generating outlooks for weekly withdrawals trailing those of corresponding winters is combining with outlooks for strong production to keep prices under pressure.

Natural gas production has continually set monthly records, and the EIA expects December dry gas production to continue the trend. Following a 1.4% increase in November to 61.70 Bcf/d from the October level of 60.06 Bcf/d, total output of natural gas across seven key shale plays is expected to climb 1.3% in December, the EIA said in the latest installment of the "Drilling Productivity Report."

Day-ahead trade for Wednesday delivery at key trading hubs saw mixed pricing as regional demand outlooks vary.

Northeast markets were bolstered with deals at Transco Zone 6 NY gaining about 10 cents to an index near $3.05 and Tetco-M3 gaining about 25 cents to an index near $2.85. Henry Hub deals ticked down about 1 cent to an index near $3.05, Waha held about unchanged near $2.70, and Chicago notched a gain of about 1 cent to an index near $3.45. In the West, SoCal Border trades were down nearly 15 cents to an index near $2.85 while PG&E Gate traded about 5 cents lower to an index near $3.00.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.