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Weather forecasts drive bullishness in Henry Hub futures, cash markets

Highlights

NYMEX prompt hits $2.84/MMBtu, highest since March

Henry Hub cash price jumps 25 cents in morning trade

Denver — NYMEX front-month natural gas futures surged to their highest level in more than seven months Monday as US weather forecasts now point increasingly toward unseasonably cold weather in November.

With balance-of-month heating demand likely to outperform, prompt prices were seen rising into the mid-$2.80s/MMBtu during early trading, data from Intercontinental Exchange showed.

In the cash market, benchmark Henry Hub gas jumped nearly 25 cents Monday to $2.74/MMBtu -- the highest spot market price since mid-September, according to preliminary data from S&P Global Platts.

Bullish price movements in US gas futures, forwards and cash markets come as meteorologists become more certain that a recent influx of colder weather will stick around over the medium term.

At just 51 degrees, the US population-weighted temperature over the past week was more than 4 degrees below average -- the coldest start to November in more than 10 years.

Over the next week, unseasonably low US temperatures are expected to continue, averaging about 50 degrees nationally, weather data compiled by S&P Global Platts Analytics shows.

November outlook

Through November, colder weather will persist in the central US and across the northeastern Atlantic seaboard, according to a forecast published Thursday by the National Weather Service.

Population centers including Chicago and New York will see a 40% chance for colder-than-normal weather, with states in New England facing a 50% risk for below-average temperatures, the agency said.

The biggest risk comes within the six- to 10-day range, when temperatures across Illinois, Indiana, Ohio, Pennsylvania, and New York could fall to about 15 degrees below average, according to a forecast released Monday by Weather Bell Analytics.

Heating demand

Already this season, colder weather has begun lifting gas demand from residential-commercial heating.

Over the last seven days, demand from US homes and businesses has averaged 29 Bcf/d, outpacing the prior five-year average over that period by 6.6 Bcf/d or nearly 30%, Platts Analytics data shows.

As temperatures continue to fall over the next week, most notably across the Midwest, US heating demand will rise to 34 Bcf/d Friday and average about 29.5 Bcf/d over the seven-day period ahead.

With states across the Midwest and Northeast facing the biggest risk for colder weather, the uptick in heating demand could significantly increase the call on US supply and potentially storage inventories.

In the Midwest, temperatures averaging just 2 degrees below normal in November could boost heating demand by 700 MMcf/d. In the Northeast, that same downside temperature deviation would drive a 900 MMcf/d increase in residential-commercial gas burn, a demand sensitivity analysis from Platts Analytics shows.

-- J. Robinson, jrobinson@spglobal.com

-- Edited by Rocco Canonica, newsdesk@spglobal.com