Market Update: November 5, 2024

This Week's Update:

There was some notable movement to the downside last week in the Cal ’25 natural gas contract, falling around a quarter to settle at $3/MMBtu. Beyond that, the rest of the curve was mainly flat last week. The Dec’24 contract sold off dramatically throughout October, giving up roughly $0.70/MMBtu in value, currently trading around $2.604/MMBtu. 

Fundamentals:

• Natural gas production came off just under 1 Bcf/d since last week, still above 101 Bcf/d

• Demand is up slightly as declines in power burn demand were offset by higher res/comm demand

EIA/Gas Storage: For the week ending October 25, The EIA reported an injection of 78 Bcf into underground storage vs. an estimated injection of 82 Bcf. Inventories are 3,863 Bcf, 107 Bcf or 2.8% more than the same period last year and 178 Bcf or 4.8% more than the 5-year average.

Weather impact:

• Weather forecasts for the next two weeks show the Eastern half of the U.S. is expected to be higher than normal, while the Western half is forecasted to have below-average conditions.

  Mid-to-late November likely holds extended warm conditions, though the Madden Julian Oscillation (MJO) hints at a cooler shift by month-end. MJO Phases 3 and 4 signal limited heating demand for central and eastern U.S., but a transition to Phase 5 could bring a colder pattern, offering the first bullish weather outlook for natural gas in three months.

In short:

• Natural Gas prices are still low as we are fundamentally in a similar position to the last few weeks. Prices are very weather and production dependent. With expectations for mostly mild weather, any cold snaps could send prices upward, especially if December forecasts shift colder. Early 2025 futures are currently near $2.80/MMBtu, but oversupply and higher inventory levels could keep prices low, barring prolonged cold weather. While fundamentals point to prices under $3.00/MMBtu in early 2025, intermittent cold fronts may trigger short-covering and temporary price spikes, avoiding the steady decline seen in recent weeks.

  • Overall we remain BEARISH long-term into winter, with a medium-term outlook that considers bullish pressure if weather forecasts shift and production leads to oversupply.

In Depth:

Near Term:

• Although the broader weather forecast remains bearish, seasonally cooler temperatures and milder-than-expected anomalies could lend some price support. However, warm anomalies over the Upper Midwest and mild cool spots in southern California suggest a regional bearish trend for natural gas.
  

• Production may increase in the coming weeks. Traders expect a production rise in November, but a slower start could support December contract prices. Production could ultimately increase by 1.5 Bcf/d by late November as curtailments end and pipeline maintenance wraps up.

• LNG demand remains lower, down 0.4 Bcf/d year-over-year, likely due to regional warmth and operational downtimes. However, demand may improve in the next 30–45 days. For now, lower LNG consumption may remain the norm.

• The December contract has struggled to maintain upside without higher heating demand. While colder December weather will support Henry Hub prices, the current physical market discount could continue to weigh on the NYMEX front-month contract.

30-45 Days:

• The scale of production gains over the next 30–45 days will likely shape medium-term price trends and set the tone for early 2025. Returning to early August production levels could mean adding over 2.0 Bcf/d, primarily from lifted Marcellus curtailments and the new Matterhorn pipeline in the Permian. Additional supply may also come from Canadian production resuming. However, timing remains uncertain, as it depends on factors like deferred turn-in-lines and completions of DUCs. While a modest 1.0 Bcf/d gain could boost prices, a 2.5 Bcf/d increase would likely push NYMEX futures lower through early 2025

• Winter weather will be critical, especially with a weak December forecast. Even a moderately cold December could reduce storage surpluses and support a bullish outlook. If LNG exports at Plaquemines or Corpus Christi Stage 3 pick up, this could further support prices, though significant LNG growth has lagged so far.

• Currently, January-March 2025 futures sit at $2.81/MMBtu, but oversupply from Canada and higher inventory levels could keep prices low, barring prolonged cold weather. While fundamentals point to prices under $3.00/MMBtu in early 2025, intermittent cold fronts may trigger short-covering and temporary price spikes, avoiding the steady decline seen in recent weeks.

Natural Gas Prices:

For contracts expiring in next 3 months (or NMR): Prices for 12-mo contract starting in Dec & Jan below:

• Why buy now? – Dec & Jan 12-mo contracts are at 2 year lows

For contracts expiring in 9-12 months:

• Why buy now? – June 12-mo contract is currently near 2 year lows as well