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November natural gas extends retreat despite storm's track toward Gulf of Mexico

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Essential Energy Insights - September 17, 2020

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November natural gas extends retreat despite storm's track toward Gulf of Mexico

NYMEX November natural gas traded lower Friday, Oct. 6, even as Tropical Storm Nate continued to head toward the Gulf of Mexico and U.S. oil and natural gas production interests. Despite the anticipation of Nate hitting the key producing area as a Category 1 hurricane late Saturday or early Sunday, cooler weather in the central and eastern U.S. associated with the storm put pressure on values.

The contract fell to a $2.856/MMBtu low and settled the session 6.0 cents lower on the day at $2.863/MMBtu.

The market continues to look to weather to assess weekly injections with eyes on storage at the end of the titular injection season Oct. 31.

The total working gas supply climbed just 42 Bcf to 3,508 Bcf in the week to Sept. 29. With comparisons to the 76-Bcf addition in the same week a year ago and the 91-Bcf five-year-average injection, the modest surplus to the five-year average turned to a deficit of 8 Bcf, the first time inventories have registered below the five-year average since the week of Jan. 20 and the year-on-year deficit widened to 161 Bcf.

The market had anticipated a 51-Bcf build to stocks for the review week as injections were seen hampered by lingering warm weather that brought 91.7% more cooling-degree days than normal for the week.

Demand slackened in the week to Oct. 4 as cooler weather prevailed. The U.S. Energy Information Administration said total U.S. consumption of natural gas fell by 14% compared with the previous report week, with power-generation consumption down 24% week over week, industrial-sector consumption up 2% week over week and residential- and commercial-sector consumption down 13%.

Early outlooks for the next inventory report that will cover the week to Oct. 6 call for a build in the upper 80s Bcf, near the five-year-average injection of 87 Bcf and the 79-Bcf injection reported for the same week in 2016.

Beyond the forthcoming storage report, temperature forecasts offer some upside momentum for the market as the National Weather Service's six- to 10-day projection points to above-average temperatures for the eastern third of the country that could inspire late-season cooling demand.

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Over the eight- to 14-day period the above-average temperatures are expected to engulf nearly the entire eastern half of the U.S. and expand into the west central and Southwest.

SNL Image

Given the calendar, above-average temperatures should still allow cooling demand to dissipate ahead of any significant ramp up in heating demand.

Tropical Storm Nate, last seen about 125 miles east-southeast of Cozumel, Mexico, and about 210 miles north-northeast of Isla Guanaja, Honduras, packing sustained winds of 50 miles per hour as it moves north-northwest at 21 mph, is anticipated to reach the southern Gulf of Mexico tonight. The storm will approach the northern Gulf Coast on Saturday and then move near or over the northern Gulf Coast by Saturday night or Sunday, the National Hurricane Center said. Nate is expected to pound the Gulf region as a Category 1 hurricane.

The Bureau of Safety and Environmental Enforcement said based on operator reports, it is estimated that approximately 71.1% of the current oil production in the Gulf of Mexico has been shut-in, which equates to 1,243,753 barrels of oil per day. Approximately 53.2% of the natural gas production, or more than 1.7 Bcf/d in the Gulf of Mexico, has been shut-in.

The supply-side impact from shut-in production should be minimized by the demand-side impact of cooler weather associated with the storm.

Cash gas values were lower as traders moved a three-day product with softer weekend demand weighing of values.

At Transco Zone 6 NY, a loss of more than 10 cents drove the index below $2.60, while Tetco-M3 traded nearly 60 cents lower to an index near 90 cents. Henry Hub trades were near unchanged at an index closing in on $2.90, while Waha and Chicago were each nearly 10 cents lower on average to indexes near $2.50 and $2.70, respectively. SoCal Border and PG&E Gate trades were also nearly 10 cents lower on average to index near $2.60 and below $3.10.

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.