U.S. natural gas futures climbed about 1% to a one-week high on Wednesday on forecasts for colder weather and higher heating demand next week and talk of bullish price support from the options market ahead of options expirations on Thursday.
Front-month gas futures for November delivery on the New York Mercantile Exchange (NYMEX) rose 4.1 cents, or 1.4%, to $3.012 per million British thermal units (mmBtu) at 9:59 a.m. EDT (1359 GMT), putting the contract on track for its highest close since Oct. 18.
That put the front-month near the psychological round number of $3 per mmBtu, where lots of put and call options were still open, ahead of the expiration of November options on Thursday and the November front-month on Friday.
With almost twice as many $3 November puts outstanding (34,329 contracts) versus $3 November calls (18,405 contracts), according to data from the NYMEX, analysts said the firms that sold those options had more reasons to want the November front-month to close over $3 per mmBtu when those options expire on Thursday (keeping those puts out of the money) than under $3 (putting the calls into the money).
A lack of big price moves in recent weeks, meanwhile, has cut historic or actual 30-day close-to-close futures volatility to 48.7%, the lowest since September 2021.
Historic daily volatility hit a record high of 177.7% in February 2022 and a record low of 7.3% in June 1991. Historic volatility has averaged 74.5% so far this year, versus a record high of 92.8% in 2022 and a five-year (2018-2022) average of 57.9%.
One factor keeping a lid on futures price gains was lower spot prices.
Lower spot or next-day prices at the Henry Hub benchmark in Louisiana have weighed on the futures market for most of this year. The spot market has traded below front-month futures for 168 out of 203 trading days so far this year, according to data from financial firm LSEG.
Next-day prices at the Henry Hub gained about 7% to around $2.85 per mmBtu for Tuesday.
Analysts have noted that so long as spot prices remain far enough below front-month futures to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
LSEG said average gas output in the Lower 48 U.S. states rose to an average of 103.9 bcfd so far in October, up from 102.6 bcfd in September and a record high of 103.1 bcfd in July.
Even though the weather in the Lower 48 will remain mostly mild through at least Nov. 9, meteorologists noted it was turning seasonally cooler with the coming of winter and will be much colder than normal from Oct. 29-Nov 2.
LSEG forecast U.S. gas demand, including exports, would jump from 97.2 bcfd this week to 107.1 bcfd next week. The forecast for next week was higher than LSEG’s outlook on Tuesday.
Pipeline exports to Mexico slid to an average of 7.0 bcfd so far in October, down from a monthly record high of 7.2 bcfd in September.
Analysts however expect exports to Mexico to rise in coming months once New Fortress Energy’s plant in Altamira starts pulling in U.S. gas to turn into liquefied natural gas (LNG) for export in November.
Gas flows to the seven big U.S. liquefied natural gas (LNG) export plants rose to 13.6 bcfd so far in October, up from 12.6 bcfd in September. That compares with a record high of 14.0 bcfd in April.
The U.S. is on track to become the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar. Much higher global prices have fed demand for U.S. exports due in part to supply disruptions and sanctions linked to the war in Ukraine.
Gas was trading around $16 per mmBtu at both the Dutch Title Transfer Facility (TTF) benchmark in Europe and $18 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino; Editing by Andrea Ricci)