ANALYSIS: Henry Hub Cal-21 forward curve plummets 8%; mild weather, high storage persist

New York — A selloff in the Henry Hub forward market has accelerated in recent trading as mild weather forecasts and persistently high storage levels reset the outlook for benchmark gas prices in 2021.

At market settlement Dec. 3, the Henry Hub 2021 calendar-year curve ended trading at just $2.56/MMBtu, falling 21 cents on the sharpest movement the forward market has seen in months.

The Dec. 3 selloff was concentrated on the upcoming winter months of January, February and March, which gave back 27 cents, 26 cents and 25 cents, respectively. The forward-loaded selloff was progressively smaller for the spring, summer and autumn contracts, which lost about 22 cents, 19 cents and 18 cents, respectively.

Over the past five weeks, the Henry Hub 2021 calendar-year curve has tumbled nearly 60 cents, or about 19%, to its most recent settlement price on Dec. 3, S&P Global Platts' M2MS forwards data shows.

Weather, storage

What might be described as a price correction at the Henry Hub comes as mild weather persists into December. Following a surge in heating demand earlier this month to weather-normal levels around 42 to 43 Bcf/d, temperatures are warming again, putting renewed pressure on spot gas markets.

On Dec. 4, residential-commercial demand was estimated at 38.2 Bcf/d. After a brief rebound this weekend, near-term forecasts show demand sliding again to around 35 Bcf/d by Dec. 9, S&P Global Platts Analytics data shows.

A recent month-ahead forecast from the Weather Service is adding to the bearish sentiment. In an outlook revised Nov. 30, the agency predicted a 33% to 50% chance for mild weather in December across most of the continental US. The prediction excludes portions of the Pacific Northwest and nearly all the Southeast including coastal Texas – both of which have limited impact on heating markets.

Persistently high storage levels, which fell by just 1 Bcf during the Thanksgiving Holiday week, have not only added to the bearish sentiment, but appear to have precipitated the Dec. 3 market selloff.

For the week ended Nov. 27, US stocks were estimated at 3.939 Tcf and are now 290 Bcf, or 8%, above the five-year average, data reported Dec. 3 by the US Energy Information Administration shows.