Natural gas futures are inching higher early Wednesday just slightly below last week’s top at $2.979. Prices rose on Tuesday after the latest weather models showed early indications of hotter weather at the end of August and the early part of September.
At 0824 GMT, October Natural Gas futures are trading $2.968, up $0.004 or +0.13%.
The deferred futures strip – November to March – may be benefitting the most from the change in the weather forecast, the nearby September and most active October are not. This is because the short-term weather forecast is calling for cooler temperatures and this is expected to lower demand.
According to NatGasWeather.com, “Overall, the pattern is neutral to a touch bearish this week” because of the weather systems sweeping across the eastern half of the country, the weather forecaster said. Things turn “at least somewhat bullish the last several days of August into the first week of September” as stronger-than-normal high pressure sets up over the eastern two-thirds of the country, “suggesting hefty deficits should still not be expected to improve until after August, and likely not until mid-September,” NatGasWeather said.
Energy Information Administration Storage
According to the U.S. Energy Information Administration (EIA), U.S. natural gas in storage increased by 33 Bcf to 2.387 Tcf during the week-ended August 10. The build was slightly more than the consensus estimate for a 30 Bcf addition.
The injection fell well short of the 49 Bcf build reported during the corresponding week in 2017 and less than the five-year average addition of 56 Bcf, according to EIA data. Stocks were 687 Bcf, or 22% less than the year-ago level of 3.074 Tcf and 595 Bcf, or 20%, less than the 5-year average of 2.982 Tcf.
Current data from S&P Global Platts Analytics show that dry gas production has averaged 78.2 Bcf/d thus far this year, which is 6.2 Bcf/d greater than this time last year. Platts went on to further say that it projects dry gas production to average 81.7 Bcf/d for the next two weeks.
Early EIA Report Estimate
The early EIA storage forecast for the week-ending August 17 shows a potential build of 48 Bcf. This would be 4 Bcf less than the five-year average. Another weak build or a miss to the downside will be bullish because it will solidify the chances of a storage deficit at the start of the winter heating season.
Trading conditions could be tricky this week depending on the futures contract being traded. The forecast for cooler temperatures could pressure or limit gains in the October futures contract. So even if the October contract spikes into $2.995 to $3.025 due to aggressive speculative buying, it’s likely to be met by short-selling hedgers.
If the hot weather returns the last week of August and early September then deferred November to March futures contract may show the strongest gains.