As traders factored in warmer forecast changes against a backdrop of broader energy market volatility following a major attack in Saudi Arabia over the weekend, natural gas futures climbed several cents Monday. The October Nymex contract settled 6.7 cents higher at $2.681/MMBtu, while November climbed 7.2 cents to $2.725.
In the spot market, an unusually hot September pattern accompanied broad-based gains to open the work week; NGI’s Spot Gas National Avg. rallied 13.5 cents to $2.390/MMBtu.
Whether gas moved higher in sympathy with the extraordinary surge in crude prices, or if it was strong late-season heat keeping the bears at bay, Monday’s price action marked the continuation of a steady rally that has seen the October contract add more than 50 cents over the past three weeks.
“Technically, this thing made a new high” Monday, said Powerhouse President Elaine Levin. “Volatility continues to accelerate, and it looks like it’s continuing to move forward here.” October pushed up against resistance at $2.700 Monday. “If we get through that, then $2.900 becomes very doable.”
Technicals aside, Monday’s gains could have stemmed partly from “sympathetic buying across the energy complex,” according to Levin.
“Perhaps it was concerns about Middle East issues that could halt some of the gas exports from there,” she said. “Whenever you have this kind of escalation in that region, it tends to have spillover effects everywhere. It’s been a long time since we’ve seen anything like this.”
Reports of attacks on Saudi oil infrastructure over the weekend sent crude prices skyrocketing Monday. October West Texas Intermediate Nymex futures settled at $62.90/bbl, up $8.05 from Friday’s settle.
Raymond James & Associates Inc. analysts emphasized the significance of the events in Saudi Arabia, estimating that the attacks took offline around 5% of global supply.
“In recent months, oil prices have traded predominantly on demand-related fears surrounding the U.S.-China trade war, but as this attack illustrates, geopolitics can be much more consequential to the overall oil supply/demand equation than the oil market has been pricing in,” the Raymond James analysts said.
“...Regardless of who is behind the attack, a supply disruption on this scale is an extraordinary event. No single disruption on this scale, either in barrel terms or percentage terms, has occurred in decades.”
As for the weather outlook, Maxar’s Weather Desk observed “large warm changes” over the weekend for the eastern half of the country in its updated six- to 10-day forecast Monday.
“Much above-normal temperatures are forecast in the Midwest, South and East, with early peaks in the mid-80s in Chicago and low 90s around mid-period in the Mid-Atlantic,” Maxar said. “Light offshore flow will have aboves in California as well, while rounds of unsettledness keep the Northwest closer to normal.”
Further out in the 11- to 15-day period, Maxar also noted warmer trends compared to Friday’s expectations.
“Warm changes are focused in the Eastern Half under continued above to much above-normal coverage,” the forecaster said. “...Despite some disagreement from the models in the regional details, general warm support has confidence being at moderate levels overall.”
Forecasts could provide enough impetus to see prices continue to strengthen this week, according to Enverus analysts.
“Late Sunday night, prices traded higher with a gap, indicating strength coming this week, and some of those gains remained” going into Monday’s trading, the Enverus team said. “Some of this run may be attributable to the Saudi loss, but any upward pressure on” liquefied natural gas (LNG) prices “due to the attacks will be slow due to capacity limitations. It is more likely that the run has more to do with the late-summer forecasts and a tropical disturbance” near the Texas coast that forecasters were monitoring Monday.
Coming off last week’s gains, daily momentum indicators as of Monday showed the market “entering an extremely overbought condition,” according to Enverus.
“Trade seems to be indicating that the bearish elements that set up the weakness during the summer may be mitigated, but the fundamentals do not support a reversal of outlook,” the Enverus analysts said. “For a long-term rally to take hold”, it would need to be “supported by new length coming into the market rather than just short covering. A rally in prices supported with high volume and growing open interest will signal a potential shift in perspective.”
As of 2 p.m. ET Monday, a disturbance over the northwestern Gulf of Mexico had a 20% chance of cyclone formation over the next 48 hours, according to the National Hurricane Center.
“Regardless of development, this system is expected to produce locally heavy rainfall along portions of the central and upper Texas coastal areas later this week,” the forecaster said.
Most spot price locations east of the Rockies gained by double digits Monday, with benchmark Henry Hub setting the tone by rallying 13.5 cents to average $2.745.
“Unseasonably strong hot high pressure continues across Texas and the South with highs of upper 80s to 90s for strong late season demand,” NatGasWeather said in its one- to seven-day outlook Monday. “The exception will be along the Texas coast as heavy tropical rains bring localized cooling. It’s also very warm to hot across much of the central United States, although cooling mid-week back into the 70s to mid-80s.
“Weather systems will track into the West with showers and highs of upper 50s to lower 70s for local heating needs,” the forecaster said. “The important corridor from Chicago to New York City will be comfortable most days, with highs of 70s to 80 for very light demand.”
National demand should ease as the week progresses, NatGasWeather said.
With commercial operations set to begin soon on the 2 Bcf/d Gulf Coast Express pipeline, discounted West Texas prices outgained neighboring regions Monday. Waha rallied 32.0 cents to $1.855. That’s the highest Waha prices have averaged since March, Daily GPI historical data show.
On the West Coast, mild conditions in the region sent SoCal Citygate prices tumbling to start the week, down 54.5 cents to $2.660.
Maxar was predicting highs in Burbank, CA, in the lower 80s to upper 70s through the end of the work week, with temperatures averaging near to slightly below normal.
Southern California Gas was forecasting total system demand of around 2-2.1 million Dth/d over the next several days, with 2.3-2.4 million Dth/d of receipts providing a roughly 200,000 Dth/d cushion for the often import-constrained utility.