U.S. natural gas futures surged over 6% for a second day in a row on Tuesday to their highest level in five weeks on forecasts the cold weather blanketing much of the country will remain through at least mid-November.
Traders noted if the current cold forecasts hold, utilities will start pulling gas out of storage during the week ended Nov. 8, a week before the five-year average.
On their last day as the front-month, gas futures for November delivery on the New York Mercantile Exchange rose 15.1 cents, or 6.2%, to settle at $2.597 per million British thermal units, the highest close since Sept. 18.
“Steadily deepening cold weather forecasts in the first half of next month have traders buying into the November contract at the last minute,” Daniel Myers, market analyst at Gelber & Associates in Houston, said in a report.
The December contract, which will soon be the front-month, gained over 8 cents to settle at $2.64 per mmBtu. That puts the premium of the December contract over November at its lowest on record, according to Refinitiv data going back to 2008 when the contracts started trading.
The sharp rise in the front-month put it into technically overbought territory with a relative strength index (RSI) over 70 for the first time since mid September. It also thrust the contract over the 200-day moving average for the first time since January. That average stood as a key level of technical resistance for 191 days.
In addition, the sharp rise in the front-month pulled up later-dated futures, boosting calendar 2020 over 2021 for the first time since late September.
Over the next 6-10 days, the U.S. National Weather Service (NWS) forecast temperatures in the Lower 48 U.S. states would remain colder than normal over much of the country except for parts of the Southwest and Florida. That cold will remain over the Midwest and Northeast over the 8-14 day period even as warmer weather moves into the southern parts of the country from California to Florida.
Refinitiv projected that average gas demand in the Lower 48 states, including exports, would rise from 94.4 billion cubic feet per day (bcfd) this week to 102.8 bcfd next week. That compares with Refinitiv’s earlier forecasts on Monday of 93.7 bcfd for this week and 103.8 bcfd for next week.
Gas flows to liquefied natural gas (LNG) export plants held at 7.3 bcfd on Monday, the same as Sunday, according to Refinitiv data. That compares with an average of 6.9 bcfd last week and an all-time daily high of 7.5 bcfd on Oct. 26.
Pipeline flows to Mexico edged up to 5.2 bcfd on Monday from 5.0 bcfd on Sunday, according to Refinitiv data. That compares with an average of 5.3 bcfd last week and an all-time daily high of 6.1 bcfd on Sept. 18.
Analysts said utilities likely added a bigger-than-usual 88 billion cubic feet (bcf) of gas to storage during the week ended Oct. 25. That compares with an injection of 49 bcf during the same week last year and a five-year (2014-18) average build of 65 bcf for the period.
If correct, that increase would boost stockpiles to 3.694 trillion cubic feet (tcf), 1.4% above the five-year average of 3.643 tcf for this time of year.
The amount of gas in inventory was as much as 33% below the five-year average in March 2019. But with production at record highs, analysts said stockpiles should end the summer injection season above normal levels at almost 3.8 tcf on Oct. 31.
Gas production in the Lower 48 states rose to a record 94.9 bcfd on Monday from 94.6 bcfd on Sunday, according to Refinitiv data. That compares with an average of 94.3 bcfd last week.