U.S. natural gas futures edged up about 1% on forecasts for colder weather and higher heating demand over the next two weeks than previously expected.
That small price increase came despite record output and a federal report expected to show a bigger than usual storage build last week when mild weather kept heating demand low.
Analysts forecast U.S. utilities added 80 billion cubic feet (bcf) of gas into storage during the week ended Oct. 20. That compares with an increase of 61 bcf in the same week last year and a five-year (2018-2022) average increase of 66 bcf. EIA/GAS NGAS/POLL
If correct, last week’s increase would boost stockpiles to 3.706 trillion cubic feet (tcf), or 5.4% above the five-year average of 3.517 tcf for the time of year.
Front-month gas futures NGc1 for November delivery on the New York Mercantile Exchange (NYMEX) rose 2.5 cents, or 0.8%, to $3.035 per million British thermal units (mmBtu) at 10:02 a.m. EDT (1402 GMT), putting the contract on track for its highest close since Oct. 18 for a third day in a row.
That put the front-month up for a fourth day in a row and over the psychological round number of $3 per mmBtu, where lots of put and call options were still open, ahead of the November options expiration on Thursday and the November front-month expiration on Friday.
With almost twice as many $3 November puts outstanding (34,010 contracts) versus $3 November calls (19,735 contracts), according to data from the NYMEX, analysts said the firms that sold those options had more reasons to want the November front-month to close over $3 per mmBtu when those options expire on Thursday (keeping those puts out of the money) than under $3 (putting the calls into the money).
One factor keeping a lid on futures prices so far this year has been lower spot or next-day prices at the Henry Hub benchmark NG-W-HH-SNL in Louisiana. The spot market has traded below front-month futures for 170 out of 205 trading days so far this year, according to data from financial firm LSEG.
Next-day prices at the Henry Hub held steady at around $2.86 per mmBtu for Wednesday.
Analysts have noted that so long as spot prices remain far enough below front-month futures to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
SUPPLY AND DEMAND
LSEG said average gas output in the Lower 48 U.S. states rose to an average of 103.9 bcfd so far in October, up from 102.6 bcfd in September and a record high of 103.1 bcfd in July.
Even though temperatures in the Lower 48 will average near normal through Nov. 10, meteorologists noted the weather was turning seasonally cooler and will be much colder than normal from Oct. 29 to Nov 2.
But that extreme cold will only hit parts of the country, with Denver expected to see snow and highs of just 30 degrees Fahrenheit (-1 degree Celsius) on Sunday, while temperatures in New York will reach 80 F (27 C) on Saturday, according to meteorologists at AccuWeather. That compares with normal highs of 60 F (16 C) in New York and 63 F (17 C) in Denver for this time of year.
LSEG forecast U.S. gas demand, including exports, would jump from 97.8 bcfd this week to 107.3 bcfd next week. The forecast for this week was higher than LSEG’s outlook on Wednesday.
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 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. liquefied natural gas (LNG) export plants rose to 13.6 bcfd so far in October, up from 12.6 bcfd in September. That compares with a record high of 14.0 bcfd in April.
Source: Reuters (Reporting by Scott DiSavino; editing by Jonathan Oatis)