Deferred natural gas futures are trading lower early Tuesday after a two-day surge. Capping the market are concerns over containment issues, while encouraging signs of looming Liquefied Natural gas (LNG) improvement are helping to underpin prices.
Meanwhile, the nearby futures contract remained under pressure on concerns over potential demand destruction from a resurgence in coronavirus cases and forecasts calling for milder temperatures in key demand areas in the Midwest.
At 09:11 GMT, December natural gas futures are trading $3.143, down $0.043 or -1.35%.
Short-Term Weather Outlook
According to NatGasWeather for September 22 to September 28, “Heavy rain will continue along the Gulf Coast as Tropical Storm Beta stalls. High pressure will rule much of the rest of the U.S. with comfortable highs of upper 60s to 80s. Hotter exceptions continue across the Southwest with 90s to 100s, while cooling rains arrive into the Northwest Wednesday through Thursday. Tropical system Teddy will get close enough to the Northeast Coast mid-week for gusty winds and minor cooling. Overall, national demand will be low.”
Although the December futures contract is trading lower early Tuesday, the winter strip remains resilient when compared to the weak front months. This comes as deferred market traders like the hedge funds are betting that demand conditions will improve in the fall and perhaps early winter. Meanwhile, spot gas prices are declining as overall weather patterns are dampening cooling demand.
“Storage is bloated,” said Robert Yawger, director of energy futures at Mizuho Securities USD LLC. “The slaughter in the natural gas space is a classic example of what happens” when overly speculative trading “hijacks a market and rallies it to supersized highs in the face of weak market fundamentals.”
But the situation may be different for the deferred or winter futures contracts with spot prices in Europe and Asia rising, lifting their premiums to the U.S. Henry Hub benchmark. This is a highly unusual development which means that U.S. LNG exports to both continents are poised to rise this fall.
Raymond James & Associates analysts said European and Asian natural gas prices are now up more than 100% from the bottoms set earlier this summer – in the wake of demand destruction caused by the pandemic – “creating a better set-up for U.S. LNG players.”