Market Update: October 7, 2024
This Week's Update:
The Nov ’24 natural gas contract is trading down $0.02 at $2.83. There was some sizable movement in the natural gas market on Friday, with the prompt month contract falling just under 12 cents to settle at $2.854/MMBtu. For the rest of the pricing curve, there was very little change throughout last week. Cals ’25-’30 were up only one to two pennies. Crude oil continues to strengthen as tensions in the Middle East rise.
Fundamentals:
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Natural gas production is up by almost 1.0 Bcf/d since last Tuesday
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Total U.S. demand is down nearly 2.0 Bcf/d. The largest change in demand stems from a decrease in power burn week over-week. Feed Gas for LNG exports stayed steady, hovering around the 12 Bcf/d mark.
EIA/Gas Storage: For the week ending September 27, 2024, The EIA reported an injection of 55 Bcf into underground storage vs. an estimated injection of 57 Bcf. Inventories are 3,547 Bcf, 127 Bcf or 3.7% more than the same period last year and 190 Bcf or 5.7% more than the 5-year average.
Weather impact:
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Weather forecasts for the next two weeks point to above-average temperatures across the country, with some normal conditions expected in the East this week.
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DTN’s 16–30-day forecast shows warm conditions in the central US but cooler temperatures in the East, potentially sparking early heating demand. The arrival of cooler weather, even if brief, could boost NYMEX futures as the market responds to bullish conditions.
In short:
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Twelve days ago, the November natural gas contract traded at $2.505/MMBtu, but bullish technicals, momentum, and speculator short-covering suggest prices could reach $3.00/MMBtu this week.
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Falling storage surpluses in October may support this rally.
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However, the market is watching supply from the Matterhorn pipeline and curtailments in the Northeast. Rising production is expected in 30-45 days, which could push prices higher in the short term.
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Longer term, increased supply from the Permian and lifted curtailments could drive prices down.
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- The November natural gas contract dipped early last week but has still gained 33.1¢/MMBtu (+13%) over the past two weeks. Bullish technical signals suggest a test of the $3.00/MMBtu mark is likely. Despite bearish factors like Hurricane Helene, the Matterhorn pipeline start-up, LNG maintenance at Cove Point, and weak market conditions in mid-October, prices have risen.
- The market avoided storage containment issues, which has supported the recent price surge. Falling storage surpluses may continue to drive prices higher, while speculator short-covering could fuel further gains. Over the next five weeks, the storage surplus could shrink by another 100 Bcf, potentially pushing prices up through mid-December. As speculators close short positions, further buying pressure may cause NYMEX prices to rise beyond fundamental levels.
- Prices have gone up since our last update, and we still hold a BULLISH near/medium-term outlook – the recent upward momentum is mostly due to falling storage surpluses. A seasonal rally is likely to continue over the next 30-45 days as storage continues to fall and cold weather sets in. The extent of the increase will largely depend on how much cold weather we see and whether speculators closing short positions drives NYMEX prices above fundamental levels (~$3.50/MMBtu). For these reasons, we see upside potential for late autumn and early winter.
- However, by late 2024, a significant supply resurgence is likely to put BEARISH pressure on NYMEX prices. Unless there is significant cold weather, the market could move into surplus, creating long-term price risks into early 2025.
In Depth:
Near Term:
- Near-term natural gas production is expected to rise as the Matterhorn pipeline de-bottlenecks the Permian and EQT lifts some curtailments, though the pace of growth is uncertain and likely uneven. The Matterhorn pipeline could see significant gains within 7-10 days, but the exact impact remains unclear. In the Marcellus, most curtailed production may not return for 30-45 days despite EQT’s statements. Pipeline maintenance may also slow production increases in early October.
- October has started with bearish conditions, including 41 gHDDs below normal and tropical demand disruptions. Over 1.5 million customer outages persist from Hurricane Helene, with another potential Gulf storm looming. Although warm early October weather is driving cooling demand, colder temperatures will be needed to sustain upward momentum in the gas market.
- LNG feed gas demand is temporarily low due to maintenance at Cove Point, but demand is expected to rise, especially as temperatures cool in late autumn. Although heat may delay this increase until mid-October, the overall trend remains bullish for LNG demand.
- The US storage surplus could shrink to just 50 Bcf above year-ago levels by the end of October, down from 252 Bcf in late July. This decline, driven by low prices, supply curtailments, and increased powerburns, supports a bullish outlook for mid-month.
30-45 Days:
- The medium-term outlook suggests a significant increase in production by mid-November, with the Matterhorn pipeline potentially adding 1.0 Bcf/d and curtailments lifting 2.5-3.0 Bcf/d of supply. Additional supply may come from Canada as curtailments there ease. Deferred production from earlier in the year, combined with seasonal Marcellus output, could loosen supply/demand balances. However, this production boost may not peak until colder weather drives up demand, keeping price risks elevated until then.
- Producers are cautious about bringing supply online without matching demand, as it could crash local prices. Cold weather will be key to maintaining higher prices and supporting a smooth return of production, which is expected to peak in December. Canadian gas exports may also increase, potentially adding bearish pressure to NYMEX futures.
- Winter weather will heavily influence market outcomes. While a warm start to the season is expected, even short bursts of cold could drive market momentum and lead to increased buying. This may push prices higher, especially if speculators cover short positions.
- In the long term, a large supply resurgence is expected by the end of 2024, likely creating bearish pressure on NYMEX futures. Higher prices will reduce power burns, and rising production from the Permian, Marcellus, and Canada will further loosen supply. Unless there is significant cold weather, the market could move into surplus, creating long-term price risks into early 2025.
Natural Gas Prices:
For contracts expiring in next 3 months (or NMR): Prices for 12-mo contract starting in Nov & Dec below:
- Why buy now? – Nov & Dec 12-mo contracts still near Feb lows, but prices are going up WoW.
For contracts expiring in 9-12 months:
- Why buy now? – Gas 2025 renewals are still near Feb lows, but rising.