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November gas sinks as mild weather portends declining demand

Novembernatural gas futures were lower as the week came to an end Friday, Sept. 30,pressured by the expectation of demand erosion due to the arrival of mildweather. The contract tumbled to a $2.892/MMBtu intraday low before reversingto a settle still 5.3 cents lower on the session at $2.906/MMBtu.

HurricaneMatthew, expected to steer away from the U.S. Gulf of Mexico, could still bringheavy rainfall to portions of the eastern U.S. in the upcoming week. Whileposing no threat to Gulf production, the possibility of cooler, rainy weatherassociated with the storm could deflate demand beyond the lower loadexpectations signaled by typical seasonal weather.

Outlookby the National Oceanic and Atmospheric Administration for temperatures acrossthe continental U.S. in the six- to 10-day and eight- to 14-day periods showabove-average temperatures in the eastern U.S., even as the category threehurricane moves in the tropics with the possibility of some weather effect onthe U.S. East Coast.

Elsewhereacross the country, above-average temperatures are also forecast for themajority of the central U.S. and a portion of the West, while averagetemperatures are forecast for portions of the central U.S. and West andbelow-average temperatures are confined mostly to an area in the north-centraland Northwest in the six- to 10-day period.

Higherlow temperatures and the absence of large areas of below-average temperaturesacross the U.S. should temper overall demand as late-season cooling load abatesand early heating demand is averted.

Largerstorage injections are likely in the coming weeks as weather moderates anddemand softens, and the anticipation of a healthy end-of-October natural gasinventory is heaping pressure on the market.

Thetotal natural gas inventory currently sits at 3,600 Bcf, after asmaller-than-anticipated 49-Bcfinjection for the week to Sept. 23. The build cut overhangs to 90Bcf above the year-ago level and 220 Bcf above the five-year average storagelevel of 3,380 Bcf, as it compared well below the 99-Bcf injection reported forthe same week in 2015 and the five-year average injection of 97 Bcf.

Analystsand traders looking early at the next inventory report that will cover thecurrent week to Sept. 30 see an increase in the rate of storage buildinglooking for an injection in the low 70s Bcf. Comparisons to the 95-Bcffive-year average injection and the 96-Bcf injection reported for the same weekin 2015 suggest additional upside price support as storage overhangs aretrimmed further, but the improvement in overall storage and additional mildweather in the subsequent weeks won the day.

Spotgas traded for the three-day period from Saturday through Monday at deflatedvalues with pressure from the low demand resulting from the combination ofweekend inclusion and milder weather.

Theprice of natural gas at the Northeast hubs deflated further to paltry levelswell below $1.00. At Transco Zone 6 NY, trades softened 30 cents to around 40cents, while at Tetco-M3 trades softened nearly 40 cents to an index around 35cents. At the benchmark, Henry Hub trades were about 10 cents lower to an indexaround $2.80. At Waha, the Saturday-through-Monday product moved about 15 centslower to an index near $2.65, while at Chicago, trades were about 20 centslower to an index around $2.65. Across the West, the three-day product traded10 cents lower to near $2.65, while the market at PG&E Gate was about 10cents lower near $3.25.

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.