Natural gas futures took a hit on Friday, but still managed to post a solid gain for the week. It was a volatile week in the nat gas complex with the nearby futures contract dropping 21.3 cents on Monday and the deferred December issue posting nearly a similar gain.
The nearby futures contract was able to recover from the hit later in the week with both futures contracts benefiting from an anticipation of a recovery in liquefied natural gas (LNG) volumes and a light government storage build.
Last week, December Natural Gas futures settled at $3.277, up $0.123 or +3.90%.
US Energy Information Administration Weekly Storage Report
Last week’s EIA report covering the week-ending September 18 came in lighter than last week as expected and the price action indicates that traders thought it was bullish.
The EIA reported Thursday that domestic supplies of natural gas rose by 66 billion cubic feet (Bcf). That was smaller than the increase of 77 Bcf forecast by analysts polled by S&P Global Platts. Total stocks now stand at 3.680 trillion cubic feet (Tcf), up 504 Bcf from a year ago, and 407 Bcf above the five-year average, the government said.
There was a lot of interest in this report because traders wanted to know if the previously reported larger-than-normal print was a one-off anomaly or reflective of a looser market.
Last year, EIA recorded a 97 Bcf build for the period, and the five-year average is an injection of 80 Bcf.
Short-Term Weather Outlook
According to NatGasWeather for September 28 to October 1, “Showers continue across the Southeast as remnants of Beta drifts slowly eastward. Hot conditions persist over the Southwest into the Plains with highs of 90s to 100s, while cooling rains continue across the Northwest.
High pressure will rule much of the rest of the U.S. into early next week with comfortable highs of upper 60s to 80s. A major pattern change will occur mid-next week as a strong early season cool shot pushes into the Midwest and Northeast with highs of 40s to 60s, while hot over the West with highs of 80s to 100s. Overall, national demand will be low into the start of this week, then increasing to moderate to high.
All eyes are going to continue to remain on the short-term weather outlook and LNG demand. The weather could be volatile all week with some forecasts calling for light demand early this week, followed by strong early season cold shots across the eastern half of the U.S. at mid-week into the next week for a surge in national demand. Meanwhile, hot conditions over the West will continue.
While we expect to see a weather related surge, we also think that gains will be limited because a bearish weather pattern is expected to return across most of the U.S. October 5 – 10th. Since traders tend to look out at least two weeks, this report will be in focus.
Encouraging signs on the LNG front along with the weekly EIA storage report will also be a source of interest. According to Bespoke Weather Services, “This number (the EIA’s 66 Bcf build) reflects very tight balances – the tightest we have seen in our data all summer long.”
Ultimately, in order to sustain a rally in the deferred futures contracts, we’re going to have to see a series of average to lower builds and increasing LNG exports. Otherwise, there is risk of a storage containment problem and that would weigh on prices.