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October natural gas climbs as expiration approaches


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October natural gas climbs as expiration approaches

Octobernatural gas futures were higher Monday, Sept. 26, on expectations that the glutof natural gas will continue to erode as strong demand and slower natural gasproduction eliminate storage overhangs through the balance of the injectionseason. With the expiration of the October contract at midweek, participantsare turning attention to November futures and the anticipation that the onsetof cold winter weather to pull down the total working gas supply. Whileclimbing back above $3/MMBtu to post a $3.018/MMBtu intraday high, the contractbacked off the high to settle 4.2 cents higher on the session at $2.997/MMBtu.

Optionson October natural gas futures expire at the close of business Tuesday and the contractrolls off the board on Wednesday, Sept. 28, just ahead of the release ofanother inventory report from the U.S. Energy Information Administration thatis expected to show another underperformance compared against historicalaverage injections.

Naturalgas inventories built by a larger-than-expected in the week to Sept. 16, but theinjection was well below the 96-Bcf injection reported for the same week in2015 and the five-year average injection of 83 Bcf.

Storagemisses against historical averages through the bulk of the injection seasonhave resulted in natural gas storage overhangs eroding to just 140 Bcf morethan the year-ago level and 268 Bcf more than the five-year average storagelevel of 3,283 Bcf. Natural gas inventories are currently at 3,551 Bcf.

Forthis week's report, traders' and analysts' early estimates for storageinjections for the week to Sept. 23 span the low to mid-50s Bcf, which wouldcompare with the year-ago injection of 99 Bcf and the five-year-average buildof 97 Bcf.

Themodest improvement to the total working gas supply would be countered by thesteady erosion of storage overhangs as participants turn attention to theNovember contract and the anticipation of cooler weather ahead.

Thelatest revisions to the National Weather Service maps for the upcoming six- to10-day and eight- to 14-day periods show above-average temperatures extendingbeyond the eastern half of the country and below average temperatures in thewest, separated by a span of average temperatures in the west central U.S.

Althoughthe midrange outlooks support some lingering cooling demand, the lower hightemperatures associated with the fall season should continue to pull backcooling demand, however, participants suggest power-sector demand will remainelevated by a new reliance on natural gas-fired generation absent coalgeneration and with winter weather about to set in.

Demandshould drive up the price of natural gas as storage levels drop and withnatural gas production lagging. For the most recent review week to Sept. 21,the EIA reported total natural gas supply fell by 1% compared with the previousreport week with dry gas production down 1% and average net imports from Canadadown 2%.

Forthe same period, total U.S. consumption of natural gas was unchanged, averaging59.4 Bcf/d, with power burn down 3% week over week, and industrial-sectorconsumption steady at an average of 19.4 Bcf/d. Natural gas exports to Mexicodecreased 5%.

Inday-ahead trade the market was mixed although the bias was to the upside asdemand supported gains alongside strength in natural gas futures.

Inthe Northeast, Transco Zone 6 NY trades were about 30 cents higher on thesession to an index near $1.10 and Tetco-M3 traded about 10 cents higher to anindex near 80 cents. The benchmark Henry Hub index near $3.05 was about 1 centabove the prior-day average. At the Waha hub, a gain of about 1 cent broughtthe index to around $2.95, while Chicago added about 5 cents to an index near $3.00.In the West, SoCal Border deals were about 10 cents higher to an index near$3.05 and PG&E Gate trades were similarly higher to an index near $3.55.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including our power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. To view detailed EIA Weekly Natural Gas Storagedata, go to our Natural GasStorage Page.