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November natural gas gives back early gains to finish in shallow negative ground

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


November natural gas gives back early gains to finish in shallow negative ground

NYMEX November natural gas futures settled lower Wednesday, Oct. 11, reversing early gains to a $2.962/MMBtu high in short covering amid oversold conditions. The contract settled the session 0.2 cent lower at $2.889/MMBtu.

The market is mired in fundamental weakness primarily driven by weather. Temperature outlooks through October suggest conditions that should limit demand and keep natural gas inventories climbing.

A net 42 Bcf was added to total working gas supply in the week to Sept. 29, bringing inventories to 3,508 Bcf. Warm weather kept demand elevated during the review week, limiting the amount of natural gas available to move into underground storage facilities.

Cooler conditions in the week to Oct. 4 included in the storage data for the week to Oct. 6 sent total U.S. consumption of natural gas lower by 14% compared with the previous report week, according to the U.S. Energy Information Administration. Natural gas consumed for power generation declined by 24% week over week. Industrial-sector consumption increased by 2% week over week. In the residential and commercial sectors, consumption declined by 13%.

Degree day data from the National Oceanic and Atmospheric Administration shows there were 43.5% fewer heating degree days than normal in the review week to Oct. 7 that countered the 42.1% more cooling degree days versus the normal level.

Backed by data, market analysts looking to the Oct. 12 inventory report from the EIA that will cover the week to Oct. 6 see the rate of injections ramping higher. Outlooks span from a 77-Bcf build to stocks to a 91-Bcf injection with consensus formed at an 84-Bcf build to stocks.

The addition at consensus would drive total working gas supply to 3,592 Bcf, and compared with the 87 Bcf five-year-average injection and the 79-Bcf build reported in the corresponding week in 2016, the year-on-five-year-average deficit would climb to 11 Bcf while the deficit to the year-ago level would be trimmed to 156 Bcf.

Inventories should keep up at a relatively healthy pace moving forward with the forecasts for above-average temperatures across nearly the entire country through Oct. 25.

SNL Image

SNL Image

Although above average, the lower high temperatures associated with this time of year should be countered by the lack of early heating demand, allowing natural gas inventories to build as production remains robust.

Indicating strong production, the EIA reported that for the review week to Oct. 4, the total supply of natural gas remained the same as the previous report week, averaging 79.7 Bcf/d. Dry natural gas production remained constant week over week, while average net imports from Canada increased by 1%.

The market will continue to watch the tropics as hurricane season continues through Nov. 30.

Production continues to improve in the wake of Hurricane Nate. The Bureau of Safety and Environmental Enforcement in an Oct. 11 report said less than 0.7 Bcf/d of natural gas production in the Gulf of Mexico is still shut-in, down from a peak of 2.5 Bcf/d reported offline Oct. 8. The amount of production now idled is equal to a little more than 20% of the region's gas-producing capacity.

The National Hurricane Center is monitoring Tropical Storm Ophelia, which was about 775 miles southwest of the Azores at 11 a.m. ET on Wednesday, packing winds of 70 miles per hour as it moved east at 3 mph.

The storm is expected to strengthen to hurricane status but is not anticipated to impact the U.S.

In day-ahead trade, the market was mostly higher given demand outlooks and recent gains in futures.

Bucking the predominant trend as it corrected from prior runs to the upside, Transco Zone 6 NY traded an average near 30 cents lower to an index near $2.60, while Tetco-M3 traded nearly $1.80 lower on the day to an index near $1.05.

Elsewhere, Henry Hub traded nearly 5 cents higher to an index atop $2.90, Waha added nearly 10 cents to an index near $2.55 and Chicago found an index near $2.80 with a similar gain. SoCal Border deals were nearly 10 cents higher to an index near $2.70, and PG&E Gate gained about 5 cents to an index near $3.15.

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