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Increased Production Balancing Market, Analyst Says; November Called 4 Cents Higher

November natural gas is expected to open 4 cents higher Thursday morning at $2.93 as overnight weather models hint at cooler temperatures late in the forecast period. Overnight oil markets retreated.

"For the third day in a row, we see significant pattern adjustments in the latter half of the 11-15 day range that are slowly rolling forward," said Matt Rogers, president of Commodity Weather Group in a morning report to clients. "Before that point, we have very small changes in the one-to-five day with some slightly warmer West shifts and a bit cooler Ohio Valley.

"The six-to-10 day runs with mostly warmer changes while the East, South, and West are closer to unchanged category-wise from yesterday. The 11-15 day is still net warmer nationally mainly due to warmer changes for the Midwest to East early in the period, but we start to show some gradual Midcontinent cooling for Days 14-15."

Estimates of this week's storage build are right in line with historical averages, thus having little impact on the storage surplus. Longer term, however, observers expect that to change.

"The weekly gas storage surplus peaked near 750 Bcf in late March 2017, has been trending lower since then, reached zero by late August, and edged higher since then," said Stephen Smith of Stephen Smith Energy Associates in a report to clients. "Over the same interval the weekly average Henry Hub spot price has held remarkably close to $3.00/MMBtu.

"The reason for the subdued response to this massive surplus drawdown is that US gas production increased by about 2.4 Bcf/d over the seven months through July 2017, and this pace of growth is likely to continue. The current 4Q17 outlook is for much milder-than-normal weather as a result, and we estimate the surplus to re-build to near 400 Bcf over the quarter."

For the week ended Oct. 6 storage estimates are in close alignment with the historical figures. Last year 79 Bcf were injected and the five-year average is for a 87 Bcf build. Citi Futures expects a 77 Bcf increase and Stephen Smith Energy is looking for an 88 Bcf injection. A Reuters survey of 24 traders and analysts showed an average 82 Bcf with a wide range from 68 Bcf to 91 Bcf.

In overnight Globex trading November crude oil fell 70 cents to $50.60/bbl and November RBOB gasoline fell a penny to $1.5977/gal.

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