Despite start of shoulder season, October natural gas futures extend strong rally

Natural gas futures rallied for a second day on Friday as the potential for supply constraints outweighed mild fall weather and modest near-term domestic demand. The impending expiration of the first month was also taken into account, analysts said.

In one look :

  • Futures surge for second day in a row
  • Domestic climate demand is declining
  • Focus on the challenges of global sourcing

October’s Nymex contract climbed 16.4 cents day / day and settled at $ 5,140 / MMBtu. A day earlier, the speedy month had advanced 17.1 cents. November gained 15.7 cents to $ 5,200 on Friday.

The Spot Gas National Avg. NGI’s, however, lost 11.0 cents to $ 4.605 on Friday, dragged down by weakening weather demand.

EBW Analytics Group noted that it’s common to buy before the month’s rapid expiration, which has likely helped boost momentum in futures.

“In the immediate future,” the EBW team said, “positioning ahead of the October options expiration on Monday and final settlement on Tuesday” will influence the markets. “Traders can increasingly choose to reduce short exposure” and “allow the October contract to extend the upward movement.”

Motivators for bulls abound, however, with modest pre-winter production in the United States, as well as the potential for precariously low stock levels in Europe and parts of Asia. With challenges abroad, the United States’ liquefied natural gas (LNG) exports to meet foreign energy needs have absorbed more supply this year than in the past, adding to concerns about the imbalance.

As demand has jumped in recent months – driven by the scorching heat and increased economic activity over the summer – production has not kept pace. The uncertainties surrounding the pandemic have pushed producers aside, and they have only increased production gradually this year. Production has held steady at 90 Bcf / d for most of this year, well below the peak of 96 Bcf / d before the coronavirus arrived.

This resulted in a slight increase in storage in the United States for most of the summer, leaving supplies for the winter below normal and raising concerns. Recent injections have helped allay concerns, but if the coming winter turns out to be unusually cold – and long – problems could arise. This possibility has underpinned recent rallies, including one earlier in September that sent futures above $ 5,400.

For the week ended September 17, the U.S. Energy Information Administration (EIA) said Thursday that utilities injected 76 billion cubic feet of natural gas into storage. This increased inventory to 3,082 Bcf. However, this left inventories well below the previous year’s level of 3,671 Bcf and the five-year average of 3,311 Bcf.

Analysts at The Schork Report said that while production is likely to increase in the fall months, it has lagged demand and storage is expected to remain low compared to previous years. They predicted that stocks at the end of the injection season – typically at the end of October – will be 9.7% lower than last winter’s starting balance.

At the same time, stocks abroad are even lighter, especially in Europe. ClearView Energy Partners LLC said European gas storage levels are currently around 73% of capacity; or 13 percentage points lower than the 2015-2019 average for the same period of the year.

That said, weather-related demand has started to ease especially in the United States along with the fall weather conditions. Relatively warm conditions at this time of year tend to result in mild temperatures and lower domestic demand.

Bespoke Weather Services said it expects above-average temperatures during the last week of September and early October.

“We expect the heat to continue even beyond Day 15, due to the base state of La Niña keeping demand quite low,” Bespoke said on Friday. “This gives us the impression that the risk increases for a potentially large price pullback once we clear the fog of contract expiration.”

Cash price

Gasoline spot prices fell for the fourth time in a week as fall weather set in and demand for cooling subsided.

Rain seeped into the northeast on Friday and cool air swept in with highs ranging from 50 to 70. A “cooling boost” was expected in the area over the weekend, said NatGasWeather, minimizing demand.

In the northeast, PNGTS lost 58.0 cents day / day to average $ 4.725 and Niagara lost 11.0 cents to $ 4.260.

Highs were also subdued across much of the Midwest, pushing double-digit price drops across the region. Emerson lost 44.5 cents to $ 3.970, while Joliet lost 16.0 cents to $ 4.455.

Summer-like highs continued to cook swathes of Texas, southwestern and southern California on Friday, although temperatures are expected to drop a bit over the weekend and with downpours sparse, NatGasWeather said.

“Domestic demand will remain weak” over the coming week, “as highs of the ’60s to’ 80s reign over most of the United States,” the company said. For the first week of October, most of the lower 48 will experience above normal temperatures, “which for the start of fall means perfect highs of 70 to 80 in the northern United States, in addition to the slightly cooler northwest and northeast corners “.

NatGasWeather forecasters “view the weather data as unusually bearish”.

In California, where prices have been volatile but high for most of the summer, SoCal Citygate fell 16.0 cents on Friday to $ 6.045.

On the Atlantic storm front, Hurricane Sam developed into open water on Friday after becoming the 18th named storm of the season, AccuWeather said. Company forecasters have warned Sam could turn into a major hurricane before approaching the northern Caribbean early in the coming week.

“An escalation is expected,” said AccuWeather meteorologist Rob Miller.

Sam was located about 1,400 miles east-southeast of the Leeward Islands, with winds of 75 mph, and he had to take a west-to-west-northwest path across the Central Atlantic on weekends, according to AccuWeather. Although its final destination is unclear, the east coast of the United States and Canada could be affected, the firm said.

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