Coming off a 12% slump last week, natural gas futures clawed back into the green Monday amid estimates of record output and potential threats to production in the form of a hurricane en route to Florida. The October Nymex gas futures contract gained 7.5 cents day/day and settled at $6.903/MMBtu. November added 2.2 cents to $7.014.

At A Glance:

  • Mixed HDD outlook in weather data
  • Pacific storage pulling hard
  • $55 spot gas on West Coast

NGI’s Spot Gas National Avg., which also gave up substantial ground over the past week, recovered Monday and increased 11.5 cents to $5.240.

Lower 48 dry gas production reached 101.1 Bcf/d over the weekend – a record in Bloomberg’s data set. Output held near that level on Monday – at 100 Bcf/d.

Supply has strengthened through much of September, while demand has started to recede with the arrival of fall weather. National Weather Service forecasts Monday pointed to mild conditions across much of the Lower 48 this week and into the first half of October.

All of this put pressure on Nymex futures last week and through most of trading Monday. But the prompt month recovered late in the day and posted gains as news of a powerful hurricane raised concerns about possible damage and production interruptions.

Hurricane Ian, churning southeast of Cuba on Monday, was expected to undergo “additional rapid strengthening” and “emerge over the southeastern Gulf of Mexico on Tuesday,” according to the National Hurricane Center (NHC). The storm could then “pass west of the Florida Keys late Tuesday, and approach the west coast of Florida on Wednesday,” the forecaster said.

Ian, combined with the looming expiration of the October contract on Wednesday, could make for a volatile week for natural gas prices, according to NatGasWeather. The firm expects Ian’s cooling rains and winds to dampen demand, but impacts on production emerged as a substantial wildcard.

“The track of Ian shifted slightly westward over the weekend and a little closer to oil and gas platforms in the Gulf of Mexico,” NatGasWeather said. “We are expecting production in the Gulf of Mexico to drop 1-2 Bcf/d as they evacuate platforms, regardless of if it hits any or not.”

Aside from possible hurricane challenges, EBW Analytics Group senior analyst Eli Rubin said fundamentals are “trending in a bearish direction.”

Rubin also noted spiking interest rates and their recent dampening effect on both stocks and commodities, including natural gas. Federal Reserve policymakers last week boosted their benchmark rate by 75 basis points. It marked the latest in a series of substantial increases intended to curb spending and tamp down lofty inflation. Fed officials told reporters to expect further rate increases.

“Aggressive Federal Reserve rhetoric last week in an effort to stamp out inflation is continuing to reverberate across financial markets,” Rubin said. “Higher short-term interest rates are sending the U.S. dollar index to new heights and weighing down dollar-denominated commodities, including crude oil and natural gas. While currency impacts are larger for crude, plunging” oil prices “may be leading many macro investors to sell off broader energy holdings with carryover bearish impacts for Nymex natural gas.”

West Texas Intermediate crude fell below $80/bbl last week and hovered around that threshold in trading Monday – down more than 30% from summer 2022 highs above $120/bbl reached in June.

Storage Snapshot

Mounting natural gas supplies in storage for the coming winter provide further support for bears.

The U.S. Energy Information Administration (EIA) last Thursday reported an injection of 103 Bcf into natural gas storage for the week ended Sept. 16. The result marked the largest of the year and easily exceeded averages.

EIA reported a year-earlier injection of 77 Bcf and a five-year average injection of 81 Bcf.

The build for the Sept. 16 week increased inventories to 2,874 Bcf. With production strong and weather demand waning, analysts are looking for another solid injection this week that could further narrow deficits. EIA said stocks remain below the year-earlier level of 3,071 Bcf and the five-year average of 3,206 Bcf.  

Early estimates have ranged from injections in the 80s Bcf on up to the triple-digits for the week ended Sept. 23. In the comparable week last year, EIA reported an injection of 86 Bcf. The five-year average is 77 Bcf.

European natural gas prices also have tapered off in recent trading sessions as countries across the continent successfully stocked up on LNG imports to offset interrupted Russian supplies.

Europe’s gas storage facilities are now about 87% full, according to Bloomberg, which puts inventories above the five-year average with winter likely still several weeks away. U.S. shipments of liquefied natural gas played a big role in helping Europe fill a gas void created after Russia cut off the bulk of its pipeline deliveries to the continent amid its war in Ukraine. Demand for U.S. LNG provided a steady bullish undercurrent for Nymex futures through the summer, but that has eased some early in the fall.

Spot Prices Recover

Physical prices, which fizzled over the past week, gathered momentum Monday on the back of forecasts for bouts of intense heat this week in the West.

SoCal Border Avg. jumped $1.895 to $7.435 on Monday and SoCal Citygate spiked $3.110 to $8.880.

Elsewhere in the West, PG&E Citygate gained 37.5 cents to $7.665, while KRGT Del Pool climbed $1.900 to $7.485 and El Paso S. Mainline/N. Baja soared $3.210 to $8.765.

Prices in most other regions were mixed, with gains and losses relatively modest.

NatGasWeather said much of the interior United States this week “will be comfortable with highs of 70s and 80s” — besides hotter 90s from California to the Southwest. Highs in the 60s were expected in parts of the Midwest and Northeast.

Looking to the first week of October, the firm added, temperatures in the southern half of the country are forecast to hover near normal levels, while northern markets will be warmer than normal with highs of 60s to 80s due to unseasonably strong upper high pressure. The net result: Light demand amid mostly mild weather.

Meanwhile, as Wood Mackenzie analyst Kara Ozgen said, forecasts show Hurricane Ian “eyeing the Florida peninsula with hurricane intensity” this week.  

The most destructive winds and storm surges appeared likely to form Tuesday – before Ian reaches the United States at midweek – according to AccuWeather. But Ian is still expected to arrive on Florida’s coast packing fierce winds and waves.

“A quick uptick in strengthening is expected early this week as Ian moves into the western Caribbean, where low wind shear and very warm water are in place. This will raise the likelihood of significant impacts in the western Caribbean, and eventually the United States,” AccuWeather meteorologist Adam Douty said.