Henry Hub front month futures have reverted to a downtrend that began in early October, following a temporary peak at $2.55 per million British thermal units (MMBtu) yesterday evening, amidst expectations of warmer weather for the final week of October.
That’s what Ole R. Hvalbye, a Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), told Rigzone in an exclusive interview on Wednesday.
“The current natural gas demand in the Lower 48 states has reached its highest level since early September, recording 76.0 billion cubic feet per day today, an increase from the weekly average of 69.3 billion cubic feet per day (Bloomberg data),” Hvalbye said.
“Yet, forecasts suggest a rise in temperatures across these states, returning to above-normal levels by the weekend. Hence, reducing demand, thus pushing prices down,” he added.
In the interview, Hvalbye stated that today’s estimated feed gas supply to U.S. LNG export terminals stands at 13.2 billion cubic feet per day, “with a noted decrease at the Sabine Pass terminal”.
“U.S. domestic natural gas production has slightly declined to 101.4 billion cubic feet per day from a recent high of 102.3 billion cubic feet per day on October 12 and a weekly average of 101.8 billion cubic feet per day,” he added.
“The pricing for U.S. natural gas futures has seen a decrease, with November contracts down 2.7 percent at $2.42 per MMBtu, and December contracts down 1.7 percent at $2.89 per MMBtu,” he continued.
In another exclusive interview today, Phil Flynn, a Senior Market Analyst at the PRICE Futures Group, told Rigzone that natural gas is “pulling back as it looks like the cold blast might ease a bit”.
“Shoulder season for demand is in full gear and there are still some lingering power outages in Florida and North Carolina that … [are] reducing demand,” he added.
“Traders are also trying to access the possibility of another cold front that may hit the U.S. to start November,” he continued.
“While it is too early to tell, some saw that there is a chance that early November could see a record-breaking chill,” Flynn warned.
In a separate exclusive interview, Frederick J. Lawrence, the ex-Independent Petroleum Association of America (IPAA) Chief Economist, told Rigzone that a combination of fundamentals, weather, and other factors are impacting natural gas prices this week.
“Despite the return of colder temperatures to various regions such as the Midwest and Northeast, many regions (such as the Southwest) have recently experienced warmer seasonal weather,” he highlighted.
“This could change soon as the central and eastern regions are forecast to receive a cold, Canadian air front during midweek,” he added.
“Natural gas continues to lead as the largest source of power generation for the U.S. In its daily generation mix, the EIA reports that natural gas provides 42 percent of power generation as of 10/16, or 4,342,021 mwh, which was the largest generating source by far with nuclear following at 18 percent and then coal at 15 percent,” he continued.
Lawrence noted in the interview that inventories for natural gas have remained fairly comfortable this year.
“On Oct. 10, the EIA reported an 82 Bcf build in inventories that was larger than the market anticipated. On Oct. 4, working gas in storage was 3,629 Bcf based on EIA estimates. Stocks were 124 Bcf higher than last year at this time and 176 Bcf above the five-year average of 3,453 Bcf,” he said.
“Based on these weaker fundamentals and wildcards impacting price, producers have continued their modest allocation of rigs directed toward natural gas,” he added.
“Last Friday, Baker Hughes reported that the natural gas fleet dropped one rig to hit 101 total, which compares to 117 gas-directed rigs a year ago,” he noted.
In the interview, Lawrence said it is important to remember that in addition to its growing role in power demand, the U.S. continues to export more gas globally.
“The EIA reported that a total of 26 LNG vessels with 96 Bcf of natural gas departed the U.S. between Oct. 3-9. This compares to 22 vessels carrying 73 Bcf a year ago based on EIA data,” he added.
