Weather, heating demand forecasts help to cool Henry Hub gas futures rally

Current weather forecasts are predicting an unusually warm start to October, promising to keep gas-fired heating demand at historic lows through at least mid-month. The outlook could add much-needed supply to the US market and appears to be helping cool the rally in Henry Hub futures prices.

Assuming the already mild start to autumn continues over the next week, the US population-weighted temperature for first-half October would register a balmy 68 degrees Fahrenheit – the warmest on record dating back to at least 2005, data compiled by S&P Global Platts Analytics shows.

As a result, residential-commercial gas demand is expected to lag historical averages.

Over the next seven days, US gas-fired heating is forecast to averaged just 14.3 Bcf/d, well below the prior five-year average at 16.9 Bcf/d. Across the continental US, only the Rockies is expected to see a significant jump in res-comm over the next week as population-weighted temperatures there fall into the 40s F.

According to the US National Weather Service, the eastern two-thirds of the lower 48 states faces an upwards of 40% probability for above-average temperatures in the eight- to 14-day outlook, with even higher probabilities concentrated in the upper-Midwest and Great Lakes states.

Futures, supply and demand

Warm weather this month, which could last through late-October, has helped to slow recent momentum in the Henry Hub futures market.

In Oct. 8 trading, the NYMEX prompt-month futures contract dipped as much as 13 cents/MMBtu, with a similar drop in prices for the December, January and February contracts. By late afternoon, the prompt-month ended trading at $5.57/MMBtu – down about 11 cents on the day.

The recent selloff in Henry Hub futures, which are down from highs in the low- to mid-$6s/MMBtu, has also likely been fueled by other factors, including recent gains in US production and storage levels.

On Oct. 5, domestic output bounced back above 90 Bcf/d for the first time since late August, where it has since remained, as offshore production continues recovering from the impacts of Hurricane Ida. Compared with production in the 30 days prior to the storm, output is still depressed – down about 800 to 900 MMcf/d, Platts Analytics data shows.

In the storage market, a surprise oversized injection announced Oct. 7 by the US Energy Information Administration has also helped to ease lingering supply concerns. For the week ended Oct. 1, the EIA estimated a 118 Bcf injection to underground storage – the largest yet for the current injection season. As of the latest report, inventories now stand at 3.288 Tcf, 176 Bcf below the prior five-year average, EIA data shows.