U.S. natural gas futures jumped about 11% to a two-month high on the Wednesday before the Thanksgiving Day holiday on forecasts for much colder weather and higher heating demand over the next two weeks than previously expected.
That price increase occurred before the release of a federal report expected to show a bigger-than-usual storage draw last week when colder-than-normal weather boosted heating demand. With the cold lingering into this week, consumers likely kept burning more gas than normal for heat this week too.
Rapid price moves in recent weeks – futures have gained or lost more than 5% during half of the trading days so far in November – boosted the contract’s 30-day implied volatility index to a record high. The market uses implied volatility to estimate likely price changes in the future.
Analysts said the market could experience even more volatility on Friday when options for the December contract expire on the New York Mercantile Exchange (NYMEX).
“Looking ahead, as market players thin out even more for the remainder of the Thanksgiving holiday week, bigger price volatility is expected as ‘options expiration’ caps the end of this week,” analysts at energy consulting firm Gelber & Associates told customers in a note.
Analysts forecast U.S. utilities pulled 87 billion cubic feet (bcf) of gas from storage during the week ended Nov. 18. That compares with a decrease of 14 bcf in the same week last year and a five-year (2017-2021) average decline of 48 bcf.
If correct, last week’s decrease would cut stockpiles to 3.557 trillion cubic feet (tcf), or 1.3% below the five-year average of 3.603 tcf for this time of the year.
Front-month gas futures for December delivery on the NYMEX were up 71.8 cents, or 10.6%, to $7.497 per million British thermal units (mmBtu) at 9:04 a.m. EST (1404 GMT), putting the contract on track for its highest close since Sept. 21.
That also puts the front-month on track to close in technically overbought territory with a relative strength index (RSI) over 70 for the first time since August.
In the spot market, meanwhile, next-day gas prices at the PG&E Citygate in Northern California jumped about 13% to their highest since February 2019.
Also supporting futures were worries about a possible rail strike that could disrupt coal shipments to utilities this winter, forcing power generators to burn more gas to produce electricity.
In addition, the market had questions about whether Freeport LNG will be able to restart its liquefied natural gas (LNG) export plant in Texas in mid-December as planned.
Freeport LNG has not yet submitted a full request to the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) to restart the export plant, according to sources familiar with the company’s filings.
That matters because once the 2.1-billion-cubic-feet-per-day (bcfd) plant restarts it will consume U.S. gas to turn it into LNG for export, boosting demand for gas at the same time that cold winter weather will boost heating demand.
After Freeport LNG delayed the plant’s restart from November to December, at least one LNG vessel – LNG Rosenrot – turned away from the facility last week. Another vessel, Prism Agility, which is near the Bahamas and says it will arrive at Freeport in a few days, also seems to have turned away from the plant on Wednesday, according to ship tracking data from Refinitiv.
There are, however, a few ships still waiting to pick up a cargo near Freeport – some have been there for weeks – including Prism Brilliance, Prism Diversity and Prism Courage.