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November gas futures advance in technical buying

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Essential Energy Insights - September 17, 2020

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November gas futures advance in technical buying

After extending 2.1 cents lower in the prior session to settle at $2.895/MMBtu, NYMEX November natural gas futures revisited the upside overnight ahead of the Wednesday, Oct. 4, open, in technical buying and with lingering weather support. At 7:10 a.m. ET (1110 GMT) the contract was 2.3 cents higher at $2.918/MMBtu.

November gas has been tethered to the downside since its debut in the lead slot on Sept. 28, accumulating a 16.6-cent decline over a four-day losing streak. Renewed buying amid sentiment of oversold conditions are beginning to inspire fresh gains for the contract, backed fundamentally by forecasts for stubborn summer-like conditions in the eastern U.S.

Heat continues to grip major cooling markets in the midrange outlooks, suggesting elevated power-sector demand for natural gas as utilities work to meet cooling requirements and limited injections to storage in the coming weeks.

National Weather Service projections show above-average temperatures encompassing nearly the entire eastern third of the country and parts of the Southwest in the upcoming six- to 10-day period, before pulling back from a few areas of the Southeast but spilling into portions of the north-central U.S. and ultimately remaining dominant over the eastern half of the U.S., as well as shifting and expanding in scope in the Southwest, further out to the eight- to 14-day period. Average to below-average temperatures settle elsewhere in the country.

Warmer weather over the eastern U.S. is already expected to have bolstered demand for natural gas and helped keep a lid on the rate of weekly storage injections when the U.S. Energy Information Administration releases its next inventory report at 10:30 a.m. ET on Thursday, Oct. 5, for the week ended Sept. 29. Preliminary estimates call for a build in the low 50s Bcf.

In the week to Sept. 27, much of which will be reflected in the upcoming storage report, a 9% week-on-week gain in power burn amid warming in the East combined with an 11% increase in residential/commercial-sector demand encouraged by a cool-down in the West to drive a 6% uptick in total U.S. gas consumption, according to the EIA's latest "Natural Gas Weekly Update."

The forthcoming storage data would follow the 58-Bcf injection in the week to Sept. 22 that took natural gas inventories to a total of 3,466 Bcf, or 127 Bcf below the year-ago level and 41 Bcf above the five-year average of 3,425 Bcf. Although above the 49-Bcf build seen in the corresponding week in 2016, this reported injection was below the full range of estimates coming into the day and the 84-Bcf five-year-average addition to stocks.

Looking at the tropics, the National Hurricane Center is currently monitoring two weather disturbances for cyclone formation, as of a 2 a.m. ET advisory on Oct. 4. Disturbance-1 is associated with a broad low-pressure area over the southwestern Caribbean Sea, with a 70% chance of formation over the next 48 hours and an 80% chance over the next five days. It is expected to become a tropical depression in the next few days. Disturbance-2 is a trough of low pressure located over central Cuba and extending northward into the Straits of Florida. Given only a 10% chance of formation over the next five days, significant development of this system is not expected.

At the cash market, weather and demand outlooks encouraged choppy price activity for next-day natural gas on Tuesday.

Looking at the key delivery locations, a near 61-cent increase steered Transco Zone 6 NY day-ahead gas price action to an index at $2.462/MMBtu, as an almost 4-cent uptick nudged PG&E Gate spot gas pricing to an average at $3.076/MMBtu. Conversely, a better-than-9-cent decline took benchmark Henry Hub cash gas price activity to an index at $2.727/MMBtu, as a roughly 7-cent reduction brought Chicago hub pricing to an average at $2.557/MMBtu.

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On a regional basis, Northeast next-day gas price activity rose by nearly 7 cents to an index at $1.927/MMBtu, as West Coast cash gas prices retreated by 4 cents on average to an index at $2.250/MMBtu. Gulf Coast spot gas price action gave back about 1 cent to average at $2.645/MMBtu, as Midwest day-ahead gas pricing notched a marginal less-than-1-cent gain in deals averaging at $2.477/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.