Natural gas futures rebounded with vigor on Thursday, propelled by domestic and global supply challenges as the peak winter demand season looms. The October Nymex contract shot up 17.1 cents day/day and settled at $4.976/MMBtu. November jumped 18.8 cents to $5.043.

Natural Gas Storage

At A Glance:

  • Futures spike 17.1 cents
  • EIA prints 76 Bcf storage injection
  • Cash prices claw back into the green

A day earlier, the prompt month broke even, ending a four-day losing streak that was driven by forecasts for mild weather into early October.

NGI’s Spot Gas National Avg. gained 3.5 cents to $4.715.

Anemic production levels and below-average gas in storage, with only a few weeks before heating demand revs up, moved to the forefront of traders’ minds Thursday, sparking a new rally.

Only last week, futures touched seven-year highs above $5.00, fueled by supply crunch worries, with both Europe and Asia scrambling to fortify stockpiles and ensure ample fuel levels to power furnaces and industrial plants this winter.

The U.S. Energy Information Administration (EIA), in the latest storage report Thursday, renewed concerns about domestic supplies, as well.

Utilities injected 76 Bcf natural gas into underground storage for the week ended Sept. 17, EIA reported. The print was essentially on par with market expectations. However, it left supplies below historic norms at a time when global demand for U.S. exports of liquefied natural gas (LNG) is soaring ahead of winter.

Prior to the report, major polls showed analysts looking for a mid-70s build. In the year-earlier period, EIA recorded a 70 Bcf injection, while the five-year average injection was 74 Bcf.

The latest build lifted inventories to 3,082 Bcf. However, it left stocks well below the year-earlier level of 3,671 Bcf and the five-year average of 3,311 Bcf.

“This winter is going to be very different from previous years for sure as we haven’t had this tight of a market in a very long time,” Refinitiv analyst Shuya Li said Thursday on The Desk’s online energy platform Enelyst. “The prompt prices have come down a bit from the record highs as we head into the shoulder season – but winter risks didn’t go away.”

By region, the Midwest led with a build of 28 Bcf, according to EIA. The South Central followed with an increase of 25 Bcf.

Looking ahead, analysts on Enelyst said they anticipated larger injections for a few weeks, given forecasts for comfortable Lower 48 temperatures. Still, they also said production needs to ramp up to ensure supply/demand balance during the winter.

Li said Refinitiv’s forecast showed U.S. production reaching 95 Bcf/d for this winter, up from around 91 Bcf/d this week. Output, however, has been slow to increase this year, she added, and the ongoing hurricane season has already delayed — and could further interrupt — production increases in the Gulf of Mexico.

“We really need this production back,” Li said, to ensure inventories are sufficient and LNG exports can support global needs.

Absent more supply, prices in the United States, as well as Asia and Europe, could surge beyond the already elevated levels, RBN Energy LLC analyst Lindsay Schneider said.

“European prices have hit new post-2008 or all-time highs more than 25 times since late June, and prices in Asia, which had been at seasonal all-time highs for most of the spring and summer, finally last week also topped [their] previous all-time record from last January,” Schneider said. “A confluence of bullish factors, including high global demand, low storage inventories, weather events, and supply outages, have all contributed to the surge in gas prices.”

Bespoke Weather Services said autumn temperatures could soothe concerns in the near term. The firm said gas-weighted degree days (GWDD) are projected to be below normal through September and into the first week of October.

“It is about as bearish of a weather pattern as you can draw up at this time of year,” Bespoke said. “Yes, the end of September into early October is not exactly weather’s key time of year, but running two-week GWDDs 25-30 below normal is pretty notable. We do expect the warmth to continue even beyond day 15, owing to the La Niña base state, keeping demand quite low.”

Cash Climbs

Next-day cash prices mounted a recovery of their own Thursday, despite the unfavorable near-term weather backdrop.

NatGasWeather’s outlook on Thursday mirrored Bespoke’s read on weather-driven demand.

“The weather data remain exceptionally bearish the next 15 days…it would be difficult to trend more bearish as the lightest demand of the year arrives the next few weeks” amid “perfect highs of upper 60s to 80s” for most of the United States, NatGasWeather said. 

Determining how long these comfortable conditions may continue will be “of great interest” to the market, and the latest data suggested they could extend “at least another 15-20 days” into early October, the firm said.

Cash prices had dropped nearly 50 cents over the first three days of the trading week after gains the prior week. NatGasWeather said the price correction appeared overdone.

Cash prices climbed Thursday throughout the Lower 48, though gains were mostly modest.

In Texas, El Paso Permian gained 6.5 cents day/day to average $4.585 and Waha advanced 10.0 cents to $4.620.

Out West, SoCal Border Avg. gained 20.5 cents to $5.755, while Questar picked up 12.0 cents to $5.110.

In the eastern reaches of the Lower 48, Columbia Gas advanced 19.5 cents to $4.210 and Millennium East Pool gained 10.0 cents to $4.180.