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Forecasts for Early October Seen Milder Overnight as Natural Gas Front Month Futures Down

With overnight forecasts showing milder conditions for much of the country after next week, October natural gas futures were trading about 3.4 cents lower shortly after 8 a.m. ET Friday at around $2.942/MMBtu.

The Global Forecast System (GFS) advertised less demand overnight, backing off on the number of heating degree days expected from late September cool shots across the northern part of the country, according to NatGasWeather.

“The European model trended colder with stronger demand with the same systems after being a bit too mild with them in previous days,” the firm said. “Both were milder Oct. 3-7, favoring warmer conditions returning across much of the country with national demand easing to light levels.

With “prices rallying” after a bearish miss from Thursday’s Energy Information Administration (EIA) storage report, “$3 becomes the next target on front month futures for bulls,” NatGasWeather said. “But with the overnight data not as impressive after Oct. 3-7, the markets could prefer to wait and see how the weekend weather data trends before deciding if $3 is justified. To our view, the markets seemed to care little” about the latest storage report “and more about next week’s,” given the potential for deficits to increase.

EIA reported an 86 Bcf weekly injection into working U.S. natural gas stocks for the week ended Sept. 14, on the high side of most estimates. The 86 Bcf figure compares to a five-year average injection of 76 Bcf and a 96 Bcf injection recorded in the year-ago period.

Total Lower 48 working gas in underground storage stood at 2,722 Bcf as of Sept. 14, about 20% below year-ago stocks of 3,394 Bcf and around 18% lower than the 3,308 Bcf five-year average, according to EIA. Intercontinental Exchange futures for end-of-season inventories continued to decline Thursday, shaving off another 7 Bcf to settle at 3,297 Bcf.

“Inventories sit at a roughly 7% deficit to five-year minimums with only eight weeks left of injection season,” analysts with Tudor, Pickering, Holt & Co. (TPH) said Friday. “Weather-adjusted, the market was less than 1.0 Bcf/d undersupplied, breaking a three-week oversupply streak. Next week, demand strength is expected to continue (particularly power generation), despite Hurricane Florence making landfall on Sept. 14, further highlighting the story of the summer: weather-related demand keeping pace with ramping supply.

“U.S. dry production is up around 0.5 Bcf/d week/week to 83.8 Bcf/d, with the Northeast adding about 2.1 Bcf/d since the end of June,” the TPH analysts added.

Natural gas bulls have clearly been able to gain the momentum this week.

The October contract’s 20.9 cent run higher since Monday has been “startling,” according to EBW Analytics Group CEO Andy Weissman.

Weissman attributed this week’s rally to colder temperatures in the 15-day forecast, “which the market took as a possible sign of a cold winter. It also may have been due to a collapse in prices in the Permian Basin...accompanied by a 0.8-0.9 Bcf/d temporary drop in production.”

Some profit-taking is likely Friday, but where prices go from here is unclear. “The reaction to the drop in Permian production is overblown...but both technical factors and the weather forecast remain uncertain,” he said. “Technically, momentum is strong, but so is resistance near $3. If breached, the October contract could quickly reach $3.09. As usual, weather is the likely tie breaker.”

November crude oil futures were trading about 51 cents higher at around $70.83/bbl Friday morning, while October RBOB gasoline was up 1.8 cents at around $2.0326/gal.

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