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Mild weather, lengthening supply balances weigh on gas market bulls

Highlights

Month-to-date US temps warmest on record at 66.4 F

Gas production, storage gains ease supply concerns

Henry Hub winter futures down $1 from recent highs

Unseasonably warm temperatures this October continue to drag on US residential-commercial gas demand, setting the stage for a bearish start to the winter heating season.

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From Oct. 1 to date, the US population-weighted temperature has averaged a balmy 66.4 degrees Fahrenheit, making for the warmest start to October dating back to at least 2005.

Over the same period, US gas-fired heating demand has averaged just 14.9 Bcf/d – its lowest for the three weeks since October 2017, S&P Global Platts Analytics data shows.

For the week ahead, current forecasts show mild weather continuing, with US temperatures averaging about 59 to 60 F, or about 3 degrees above normal. Res-comm could hit record lows over that period.

According to a recent forecast from Platts Analytics, demand should average just 19.3 Bcf/d – 4.3 Bcf/d, or almost 20%, below average.

Futures prices, supply

A bearish start to the heating season has helped to slow upward momentum at the US benchmark Henry Hub recently, where winter gas prices are down sharply from early October highs.

In Oct. 22 trading, NYMEX futures prices for December, January and February were up about 10 cents to an average $5.50/MMBtu, CME Group data showed. Earlier this month, prices for the three peak-winter-heating months had climbed to nearly $6.50/MMBtu, according to S&P Global Platts data.

The October selloff has likely been fueled, at least in part, by factors other than weather. Recent gains in production and storage also appear to have eased lingering supply concerns.

Earlier this month, US gas production bounced back over 91 Bcf/d for the first time since late August as offshore operations continue to recover from the impacts of Hurricane Ida.

In the storage markets, two surprisingly oversized injections this month have helped to narrow this season's storage deficit to just over 150 Bcf – down from a 235 Bcf deficit as recently as September. As of the week ended Oct. 15, total US inventory now stands at 3.46 Tcf, data from the US Energy Information Administration shows.

Seasonal forecasts

Recent long-lead forecasts suggest that mild weather could remain a persistent drag on gas demand, and prices, through the fall and upcoming winter months.

On Oct. 21, the US National Weather Service published its latest series of seasonal forecasts showing much of the continental US at risk for mild weather this winter.

In November, most of the lower 48 states face at least a 33% probability for above-average temperatures with a 40% to 50% risk of mild weather concentrated in the Northeast.

During the peak-winter-heating months of December, January and February, the upside risk is even greater, with a 33% to 60% probability for mild temperatures for every US region expect the northern Plains and Pacific Northwest, Weather Service data shows.