Natural gas futures finished sharply lower last week and in a position to challenge the summer bottom at $2.135. The selling pressure was primarily driven by another large storage build, lower spot gas prices and weather models showing weaker demand in the 15-day forecast. Specifically, Permian Basin production growth exerted the most pressure on prices.
Last week, December natural gas settled at $2.457, down 0.067 or -2.65%.
Permian Basis Production
According to reports, Kinder Morgan’s Gulf Coast Express unleashed huge volume into the market. With little demand to soak up the deluge of supply, prices collapsed from $1.00 earlier in the week to as low as 10 cents on Friday.
Production Overwhelms the Market
“Each day this week finished with declines at the front of the curve and since September 10, there have been four positive day/day changes for the prompt-month contract,” Mobius Risk Group said. “While it is reasonable to view the market as ‘oversold’, a change in weather model output (cooler Northern tier) may be needed before momentum changes.”
U.S. Energy Information Administration Weekly Storage Report
The EIA reported last Thursday that domestic supplies of natural gas rose by 98 billion cubic feet for the week-ended October 4. Trader estimates ranged from an 80 Bcf injection to a 107 Bcf injection.
The EIA reported a 91 Bcf build for the same week last year, and the five-year average stood at 89 Bcf.
Total stocks now stand at 3.415 trillion cubic feet, up 472 billion cubic feet from a year ago, but 9 billion below the five-year average.
Mid-Term Weather Forecast
The latest weather outlooks are starting to hint at the return of cold, teasing a chillier pattern trying to push into the northern United States to close out October, but with more evidence needed, according to NatGasWeather.
“It’s possible the natural gas markets notice a few heating degree days being added overnight, but more importantly could notice the latest data trying to hint at a colder air into the northern United States October 25-30. Clearly, the onus is on widespread cold arriving and lasting if weather sentiment is to be considered bullish, but the data took a small step in that direction.”
Over the past few weeks, we’re seen bursts of heating demand, but the rallies have fizzled as rising production continues to put a cap on prices while threatening to take out summer lows.
“The key remains late October/early November weather. No clear signal has yet emerged. Until this changes, price movements may be small,” EBW said.
With prices at historically low levels for this time of year, the market could turn higher rather quickly if a lingering cold snap emerges, but that’s a big “IF”.