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Nov. natural gas pulled lower amid bearish fundamentals

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Essential Energy Insights - October 2021


Nov. natural gas pulled lower amid bearish fundamentals

NYMEX November natural gas futures were briefly pulled higher early Monday, Oct. 9, but gains failed to hold as the contract was weighed down by the calendar. Even with forecasts calling for above-average temperatures to maintain a hold on major portions of the country, lower high temperatures associated with the season should limit demand, keeping downside pressure on values.

The contract managed a $2.886/MMBtu high before the force of bearish fundamentals tugged the front-month contract to a $2.827/MMBtu low and a settle 3.0 cents lower on the day at $2.833/MMBtu.

Updated weather forecasts from the National Weather Service show that nearly the whole country will see above-average temperatures through late October, a period that typically sees heating demand ramp up.

SNL Image

SNL Image

"With another warming trend engulfing most of the country east of the Rockies through the third week in October it is almost certain that heating degree days for the month of October will be decidedly below normal while cooling degree days will be above normal but not enough to offset the loss of heating demand," Energy Management Institute principal Dominick Chirichella said.

Alongside the pressure of slackening demand, natural gas production, which was flat week on week in the week to Oct. 4 at an average of 79.7 Bcf/d, signaled more losses as market participants expect a more-than-adequate total working gas supply at the end of injection season.

Strong production and a delayed ramp-up in heating demand should allow natural gas inventories to build at a more rapid pace in the remaining few weeks of the titular injection season through Oct. 31.

Longer-range weather outlooks that point to a delay through November of strong heating demand suggests that inventories will continue to climb well into November.

The Weather Company called for warmer-than-normal weather across much of the United States in October, with below-average readings anticipated in most of the country by December.

"A new La Niña event continues to emerge quickly as we head into the fall season. As is typical in emerging La Niña events, we expect a warm October across most of the eastern U.S., resulting in a slow start to the heating demand season. By later in the fall, we expect the pattern to drive cooler-than-normal temperatures in the eastern U.S., with these below-normal temperatures becoming more widespread in December," Todd Crawford, chief meteorologist at The Weather Company, said in the outlook released Sept. 26.

Natural gas inventory building could hit a snag in the upcoming weeks as natural gas production was shut in as a result of Category 1 Hurricane Nate, which made landfall on the Gulf Coast the night of Oct. 7.

The Bureau of Safety and Environmental Enforcement reported that roughly 77.7% of Gulf of Mexico natural gas production, equivalent to 2.5 Bcf/d, remained offline as of Oct. 8. In addition, 1.62 million barrels of oil per day, or about 92.6% of total regional oil output, remained shut in.

In an Oct. 9 update, the BSEE reported that 64.78% of Gulf of Mexico natural gas production, equivalent to 2.1 Bcf/d, remained offline, and 1.49 million barrels of oil per day, or about 85.09% of total regional oil output, remains shut in.

The 111,913 customer outages scattered across Alabama, Florida and Mississippi reported late Oct. 8 should prevent a major impact from the loss of production.

Prices for natural gas moved at day-ahead markets for Tuesday delivery were mixed as participants considered varied weather and demand outlooks.

In the Northeast, Transco Zone 6 NY and Tetco-M3 trades were each about 35 cents higher on the day to indexes near $2.90 and $1.30, respectively. At the benchmark Henry Hub and Waha, losses of about 5 cents drove indexes to near $2.85 and $2.45. Chicago managed a modest gain of about 1 cent to an index atop $2.70. In the West, SoCal Border and PG&E Gate trades were less than 5 cents lower to averages below $2.60 and near $3.05, respectively.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas and coal index prices, as well as forwards and futures, visit our Commodities Pages.