Natural Gas Market Update: Supply and Pricing Dynamics
After surpassing $3.00 on Friday, natural gas prices experienced a sell-off as investors took profits, resulting in a $0.20 drop over the weekend. Meanwhile, Brent crude oil has climbed to $77.00 due to fears of an expanding Middle East conflict potentially involving Iran, leading producers to shelve production cut plans.
Injection rates have been lagging, with only three weeks since late March surpassing the five-year average. This has caused the gas surplus to shrink from over 20% above the five-year average to just 5.7%.
LNG Outlook
The upcoming winter presents an intriguing liquid natural gas (LNG) scenario. With European natural gas stockpiles nearing 90% capacity, demand may be lower than anticipated, potentially limiting LNG’s market impact until mid-February. Currently, LNG exports are hovering around 12.5 Bcf/d.
Weather and Demand Forecast
Temperature Trends
Warmer temperatures are expected to move in from the West, though they will still be cooler than September’s levels. This shift is likely to result in a slight drop in demand as we enter a shoulder month, with fewer people using air conditioning or turning on heating.
Outlook:
Most of the US will experience comfortable temperatures with highs ranging from the 60s to 80s. Exceptions include:
- California, Southwest, and Texas: Hotter conditions with 90s-100s
- Great Lakes and Northeast: Cooler temperatures in the 50s as a weather system moves through
Florida is bracing for heavy rain and wind Wednesday through Thursday as Hurricane Milton approaches. Overall, the next seven days are expected to see low to very low demand.
Market Implications
Moderating temperatures, high European gas storage levels, and geopolitical tensions affecting oil prices create a complex landscape for natural gas markets. Investors and industry participants should closely monitor weather patterns, LNG export dynamics, and injection rates as we approach the winter heating season.
NYMEX NATURAL GAS CALENDAR STRIPS
ALL ABOUT THE NYMEX TWELVE-MONTH STRIP
• The NYMEX Twelve Month Strip is the average of the upcoming 12 months of closing Henry Hub natural gas futures prices as reported on CME/NYMEX.
• A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction.
• The NYMEX Twelve Month Strip can lock in a specific price for natural gas futures for a year with 12 monthly contracts connected into a strip.
• The average price of these 12 contracts is the particular price that traders can transact at, indicating the direction of natural gas prices.
• The price of the NYMEX Twelve Month Strip can show the average cost of the next twelve months’ worth of futures.
• The NYMEX Twelve Month Strip is also used to understand the direction of natural gas prices and to lock in a specific price for natural gas futures for a year.
