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November gas recovers losses overnight but bearish fundamentals persist

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


November gas recovers losses overnight but bearish fundamentals persist

After ending the week's opening session 3.0 cents lower at $2.833/MMBtu, NYMEX November natural gas futures recovered most of the losses overnight ahead of the Tuesday, Oct. 10, session. At last glance at 6:30 a.m. ET, the front-month contract was trading 2.9 cents higher at $2.862/MMBtu, although a host of bearish fundamentals remain in the way of bigger gains.

Weather in store suggests lackluster demand, as the projected prevalence of above-average temperatures and the calendar implications for lower high temperature readings look to keep lingering cooling load limited and heating demand at bay.

The latest National Weather Service forecast maps for both the six- to 10-day and eight- to 14-day periods show above-average temperatures stretching over the entire eastern and central U.S. into portions of the Southwest, confining the scope of average to below-average temperatures to much of the West.

"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.

Further out, The Weather Company sees normal to warmer-than-normal temperatures across much of the U.S. from October through November, which should further delay the onset of significant heating demand.

"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," according Todd Crawford, chief meteorologist at The Weather Company.

Subdued demand implied by weather projections should allow for natural gas production to flow more freely into underground storage facilities and beyond the end of the titular injection season on Oct. 31.

Ahead of this, however, storage-building will be impacted by curtailed production associated with Hurricane Nate, which made landfall on the Gulf Coast the night of Oct. 7.

As of an Oct. 9 update from the Bureau of Safety and Environmental Enforcement, 64.78% of Gulf of Mexico natural gas production, equivalent to 2.1 Bcf/d, remains offline, and 1.49 million barrels of oil per day, or about 85.09% of total regional oil output, remains shut in.

Total working gas stocks currently sit at 3,508 Bcf, or 161 Bcf below the year-ago level and 8 Bcf below the five-year average of 3,516 Bcf, after the U.S. Energy Information Administration reported a 42-Bcf build for the week ended Sept. 29.

The EIA sees natural gas inventories ending the traditional refill season around 3.8 Tcf, with injections lower than or equal to the five-year average through the balance of the season.

In cash action, pricing for natural gas booked Monday for Tuesday flow moved in diverging directions, as traders considered varied weather and demand expectations.

Looking at the key hubs, a better-than-30-cent increase steered Transco Zone 6 NY spot gas price activity to an index at $2.877/MMBtu, as an almost 1-cent uptick nudged Chicago next-day gas pricing to an average at $2.713/MMBtu. Conversely, a roughly 6-cent reduction drove benchmark Henry Hub day-ahead gas price action to an index at $2.867/MMBtu, as a near 4-cent retreat took PG&E Gate hub pricing to an average at $3.050/MMBtu.

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On a regional basis, Northeast cash gas price action notched an almost 34-cent gain in deals averaging at $2.348/MMBtu, as Midwest day-ahead gas price activity shed about 1 cent to average at $2.602/MMBtu. Gulf Coast spot gas pricing was up by nearly 1 cent day on day at an index at $2.746/MMBtu, while West Coast next-day gas prices were off by roughly 1 cent on average at an index at $2.338/MMBtu.

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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 and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.