Natural Gas: Could $3 Hold With Mid-Fall Cold?

Natural gas bulls are once again on the market’s slipperiest slope for this year — $3 pricing — with weather, demand and production all seemingly aligned for them to reach the top. Still, with two failed attempts in a span of five months, it wouldn’t be entirely wrong to wonder if they’ll stay the course.

Since their last foray into $1 per mmBtu, or million metric British thermal units, territory in April, gas futures on the New York Mercantile Exchange’s Henry Hub have climbed nearly 60% from the lows of then to reach $3.055 on Wednesday — a peak since the 2023 high of $4.394.  

But it has been a stormy ride all along for the longs, who for the lack of a real major storm — snow or hurricane — were often caught in the throes of mid-$2 pricing. There wasn’t a lack of drama though, be it sudden spikes in LNG demand, unexpected pipeline outages or record production exceeding a billion cubic feet, or bcf, a day. There was even a 24% gain for June — the best month for gas bulls since April 2022. 

Miraculously though, $3 pricing kept evading the market most of the year. Before this week, it happened only in March, when some late chill minus the typical frigidity of winter led to average heating demand that brought a peak of $3.027. Then in August, with record heat in Texas and other summer hotspots, there was a brush with $3.018.

Is Daily Production Above 100 bcf a New Normal?/h2

Now, with the mid-fall season suggesting some deeper cold before the transition to winter, some analysts are postulating that the market may just hold on to $3 levels as the trade increasingly embraces production above 100 bcf a day as the new normal for America. 

Some are also considering as negligible current storage overhang that’s 6% above five-year levels. To be sure, it was double-digits before.

Bloomberg, for instance, estimated that production held just above 100 bcf/d on Wednesday, on par with earlier in the week amid a spate of maintenance events in the Permian Basin. More importantly, output for October thus far has been more than 2 bcf/d below peak summer months.

Concurrently, trade journal naturalgasintel.com cited NatGasWeather as saying that forecasts have added several heating degree days, or HDDs, largely because of colder air projected to blow into the northeastern United States late this week, creating an early bout of demand for gas to power furnaces. 

Some heating demand already emerged in the far northern reaches of the Rockies and Upper Midwest early this week after a chilly, rainy system moved into those regions, NatGasWeather said.

Breaking the phenomenon down, the firm says cool weather is expected to hover over the Midwest and push into the Northeast, providing a “minor bump” in demand over the coming weekend, though southern portions of the country should experience lighter cooling needs at the same time. It adds:

“Long-range weather maps show near to warmer versus normal temperatures over most of the U.S. Oct. 19-31 for lighter than normal demand.” 

“The risk is [that] cooler trends show up in time across either the Midwest or Northeast, just as the overnight data showed for early next week and the eight- to 15-day period.”

The weather and storage projections come ahead of the US government’s weekly update today on natural gas supply-demand for the week ended Sept. 29.

Below-Average Storage Build for Last Week?  /h2

US utilities likely added a below-average 92 bcf to storage last week, a Reuters poll showed on Wednesday.

That would be lower than the 126 bcf injected during the same week a year ago and the five-year (2018-2022) average increase of 103 bcf for this time of year.

In the week ended Sept. 22, utilities added 90 bcf of gas into storage.

The forecast for the week ended Sept. 29 would lift stockpiles to 3.451 trillion cubic feet, or tcf, which is 11.8% above the same week a year ago and 5.4% above the five-year average.

There were 59 total degree days, or TDDs, last week compared with a 30-year normal of 63 TDDs for the period, Reuters-associated data provider Refinitiv said.

TDDs measure the number of degrees a day's average temperature is above or below 65 degrees Fahrenheit (18 Celsius) to estimate demand to cool or heat homes and businesses.

Some Weather Patterns Look Murkier as Fall Deepens /h2

Mickey Shuman, a senior meteorologist with Atmospheric G2 says that a significant pattern change is expected later this week into early next week. He adds:

“An amplified upper-level flow and an embedded storm system will abruptly end the residual warmth in the eastern US and drive the first modified polar cold shot into the central, southern, and eastern US. The cool-down will lead to a sharp uptick in HDDs, briefly pushing daily levels to the higher side of the average.” 

Steve Silver, a senior meteorologist with Maxar, says the near-term features unseasonable warmth in the East ahead of a cold front that brings the first real taste of fall to the mid-continent. He adds:

“Chicago sees highs retreating from mid 80s on Wednesday to upper 50s by the weekend. Cooler air also looks to infiltrate Texas by the weekend, ending a spate of hotter weather that lasted through most of September.”

More LNG demand may be on tap too

According to EBW Analytics Group senior analyst Eli Rubin, the Cove Point LNG export facility in Maryland “may return from its annual outage within the next seven to 10 days – laying the groundwork for a potential rally in mid-to-late month”. Cove Point has been sidelined for weeks because of planned fall maintenance.

Additionally, Rubin said, Freeport LNG in Texas requested approval from the Federal Energy Regulatory Commission to initiate work to return a second loading dock to service. That dock has been offline since an explosion at the facility in June 2022.

The absence of the second loading dock has impinged operational flexibility at Freeport and kept feed gas roughly 10-20% below its demonstrated capacity, Rubin said, adding:

“As the second loading dock is returned to service and temperatures cool seasonally, Freeport feed gas may rise 0.3-0.4 bcf/d – provided it can avoid the recurring operational problems that have repeatedly ailed the LNG export facility.

Gas charts show support for $3, with some caveats

So, back to the odds of $3 pricing: How well supported it?

Chart by SKCharting.com, with data powered by Investing.com

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Sunil Kumar Dixit, chief technical strategist at SKCharting.com, says Henry Hub’s charts showed a potential to hold to that level if anchor support formed at $3.25. He adds:

“Stability above $2.93 acts as support for the current bullish wave that targets $3.18 and the 100 Month Simple Moving Average of $3.25, which is closely followed by the 50-week Exponential Moving Average of $3.33.”

“But a strong base above $3.25 would be needed for an extension of the bullish rebound towards the next leg up, marked by the 200-week SMA of $3.77.”

“We should remember the last strong upward momentum that left a runaway gap at $2.78 - $2.65 to be filled.”

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Disclaimer: The aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.