In the wake of huge gains to start the week coinciding with the October contract expiration, natural gas futures reversed sharply lower early Wednesday as analysts pointed to signs of easing supply/demand tightness domestically. November Nymex futures were off 16.5 cents to $5.715/MMBtu at around 8:50 a.m. ET.
More fireworks are likely in store for natural gas prices as traders contemplate trends in domestic balances and tightness in overseas markets with winter approaching, Bespoke Weather Services observed.
“Strong volatility is surely not done, and in fact is likely just getting started,” Bespoke said in a note to clients. “Now that October expiration is out of the way, it will be interesting to see if we begin to focus more on the data here in the U.S., or if we continue to stay tied to price action over in Europe.”
Balances have loosened compared to a few weeks ago, putting the market on track to exit the injection season with about 200 Bcf more in storage than previously projected, according to the firm.
Overall, the various natural gas data points suggest “downside price risks currently, but confidence is low in the event we simply stay tied to Europe’s trends,” Bespoke said.
NatGasWeather similarly advised clients early Wednesday to expect “another wild ride” for natural gas prices.
Dutch Title Transfer Facility prices “spiked 10% to new highs yesterday before selling off, like U.S. markets,” NatGasWeather said. “The narrative remains the same, with tight supplies in Europe and Asia leading to risk on trade due to uncertainty of what the coming winter will bring.”
U.S. supplies look to be in better shape than overseas markets, with the inventory deficit to the five-year average expected to shrink to below 200 Bcf over the next three to four Energy Information Administration (EIA) storage reports, the firm said.
“But the U.S. supply/demand balance remains relatively tight when temperatures are anomalously hot or cold,” NatGasWeather said. “With that said, the wild card is if Lower 48 production increases in the weeks and months ahead to take advantage of higher prices.”
Looking ahead to this week’s EIA report, NGI’s model predicted an 89 Bcf injection for the week ended Sept. 24. Such a print would exceed historical norms; the year-ago build is 74 Bcf, and the five-year average is an injection of 72 Bcf.
Energy Aspects issued a preliminary injection estimate of 85 Bcf for the upcoming report. The firm modeled a 1 Bcf/d week/week increase in production for the report period.
Even with the shoulder season potentially bringing triple-digit builds, inventories remain “poised to enter the heating season just below 3.5 Tcf,” Energy Aspects said in a recent research note. “Our storage target now includes a lower production profile tied to maintenance-related interruptions, especially in the Northeast. Although such pipeline work typically occurs ahead of the heating season, the market’s hair trigger makes any modest changes to balances potentially more significant.”
November crude oil futures were down 52 cents to $74.77/bbl at around 8:50 a.m. ET.
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