U.S. natural gas futures climbed about 4% to a two-week high on contract expiration volatility and forecasts for colder weather and higher heating demand over the next two weeks than previously expected.
Traders noted gas prices also gained some support from the rest of the energy complex with crude futures up about $2 a barrel earlier in the session on worries about escalating Middle East conflict. O/R
On its last day as the front-month, gas futures NGc1 for November delivery on the New York Mercantile Exchange rose 11.2 cents, or 3.5%, to $3.326 per million British thermal units (mmBtu) at 9:16 a.m. EDT (1316 GMT), putting the contract on track for its highest close since Oct. 12.
That put the contract up for a fifth day in a row and pushed it into technically overbought territory, with a relative strength index (RSI) above 70, for the first time since mid October.
Front-month prices are often extremely volatile ahead of expiration – November futures jumped by about 7% on Thursday and were up over 5% earlier on Friday – due in part to low volumes. There were only 1,759 November futures traded so far on Friday, down from an average of 129,500 front-month contracts traded daily since the start of the year.
Futures for December NGZ23, which will soon be the front-month, were up about 4% to $3.60 per mmBtu.
For the week, the front-month was up about 14% after falling about 10% last week. That would be the biggest weekly gain since it rose about 17% in mid June.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states rose to an average of 103.9 billion cubic feet per day (bcfd) so far in October, up from 102.6 bcfd in September and a record high of 103.1 bcfd in July.
Meteorologists forecast the weather would turn from warmer than normal now to colder than normal from Oct. 29-Nov. 2 before becoming mostly near normal from Nov. 3-11.
Next week will be extremely cold in some parts of the country like Denver where AccuWeather meteorologists forecast Sunday will be snowy with a high of just 26 degrees Fahrenheit (minus 3 Celsius). That compares with a normal high of 63 F (17 C)in Denver at this time of year.
LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would jump from 97.6 bcfd this week to 108.2 bcfd next week as cold weather boosts heating demand before sliding to 107.3 bcfd in two weeks with the return of milder, but still seasonally cool, weather.
The forecast for next week was higher than LSEG’s outlook on Thursday.
Pipeline exports to Mexico slid to an average of 6.9 bcfd so far in October, down from a monthly record high of 7.2 bcfd in September.
Analysts, however, expect exports to Mexico to rise in coming months once U.S. energy company New Fortress Energy’s NFE.O plant in Altamira starts pulling in U.S. gas to turn into liquefied natural gas (LNG) for export in November.
Gas flows to the seven big U.S. LNG export plants rose to 13.6 bcfd so far in October, up from 12.6 bcfd in September but still below April’s record high of 14.0 bcfd.
The U.S. is on track to become the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar. Much higher global prices have fed demand for U.S. exports due in part to supply disruptions and sanctions linked to the war in Ukraine.
Gas was trading around $16 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe TRNLTTFMc1 and $18 at the Japan Korea Marker (JKM) in Asia.
Source: Reuters (Reporting by Scott DiSavino; editing by Jonathan Oatis)