NYMEX Henry Hub tests out lower ranges as winter supply concerns ease

NYMEX Henry Hub repeatedly fell below the $5/MMBtu mark in recent trading, with analysts attributing the decline to a mild start to the heating season, more gas in storage, and the US benchmark's increased exposure to global markets.

The prompt-month contract has largely remained in the $5.50-$6.00/MMBtu range since mid-September; however, it settled in the $4.70-$5.10/MMBtu range in four of the five last trading sessions.

Most recently, NYMEX December settled at $5.02/MMBtu on Nov. 15, according to CME Group data. The contract moved in a wide intraday range of $4.71-$5.02/MMBtu, testing both directions from its prior-day settlement of $4.79/MMBtu.

Fundamentals

"We had the price run-up in anticipation of below-average storage and tight winter conditions, but now we are getting to the point where we need to see that winter demand show up," Daniel Myers, a senior market analyst at consultancy Gelber & Associates, said in a phone interview.

So far, this November has been relatively mild, apart from a brief cold snap in the beginning of the month. US res/comm demand has averaged 29.2 Bcf/d for Nov. 1-15, making it the second-lightest start to the heating season in the last five years, S&P Global Platts Analytics data shows.

Robust production growth has also eased concerns over a US winter supply crunch.

US gas production has increased to levels not seen since March 2020 in recent weeks, according to S&P Global Platts Analytics data. Month-to-date production has averaged 93.9 Bcf/d, up 2.2 Bcf/d from the October average.

The lower heating demand and higher production has translated into a robust recovery in storage levels.

Total Lower 48 gas storage has gained a net 330 Bcf since the start of October, rising to 3.618 Tcf for the week ended Nov. 5, according to the most recent Energy Information Administration weekly storage report.

The additional injections have narrowed the deficit to the five-year average to 3.2%, down from the 5.1% observed at the start of October.

Exposure to global markets

Beyond the fundamentals, some market watchers have highlighted the possible impact of global market dynamics on the US benchmark. With US LNG feedgas demand averaging 11 Bcf/d month-to-date and additional capacity set to come online this winter, the US has never had more exposure to external pricing and fundamentals.

Unlike physical Henry Hub, which is moved by underlying supply and demand, financial Henry Hub's liquidity and use as a trading instrument bring additional factors to bear, including market sentiment.

"More and more, we are looking at the global market, which we haven't done in a long time," Price Futures Group senior market analyst Phil Flynn said. "We will be influenced by what's happening in Europe more and more. We'll watch that market to see how that plays out."

Elaine Levine, president of Washington-based brokerage PowerHouse, had a similar take, saying "I think that the interconnectedness of the world is showing up in the prices – we've got a great liquid benchmark."

"Traders need a place to express their fear and greed," Levine continued. "So if [traders] are concerned about supply in Europe – at least in my opinion, it will show up here. Where else can you put that concern in the market but into the liquid benchmark?"

The period of lower NYMEX Henry Hub pricing has occurred in tandem with an easing of gas prices in Europe, after Russia's leadership signaled that pipeline flows to Western Europe would soon increase.