Natural gas futures extended their rally in the middle of the trading week, topping $3 for the first time in nearly two years. Natural gas prices had been trending higher on recent winter weather forecasts, as well as rising foreign demand for liquefied natural gas (LNG). Now that the energy commodity has surpassed the psychologically important level of $3, where is natural gas headed next?
November natural gas futures surged $0.114, or 3.91%, to $3.027 per million British thermal units (btu) at 18:43 GMT on Wednesday on the New York Mercantile Exchange. Natural gas prices have been on a tear in 2020, skyrocketing 79% over the last three months. Year-to-date, the energy commodity is up 38.5%.
Will Old Man Winter make an early return? Or will North America experience a green winter? It depends on whom you ask – and what the La Nina climate patterns show.
The latest winter forecast from the National Weather Service (NWS) suggests that many parts of the US could endure warmer-than-normal conditions, including the southern half and eastern third. The north-central and northwest might endure colder temperatures over the next several months. If winter is warmer than average, it could lead to slumping demand, which is bad news for natural gas prices.
That said, the latest data purport that the supply-demand balance is tightening.
US output levels are down one billion cubic feet per day, leading to projections that storage surpluses should decline in the coming weeks. This would be bullish for the so-called bridge fuel, considering that domestic inventories are 354 billion cubic feet above the five-year average. When you factor in temporary shutdowns in output in the Gulf of Mexico earlier this month and renewed LNG demand, traders are bullish.
EBW Analytics Group believes that the short- to medium-term factors will be pipeline flows and weather. NatGasWeather, meanwhile, thinks weather data has been too unreliable for investors to use for moves.
It’s this system where the greatest amount of demand was added the past 24 hours. Although, we caution, the weather data has been inconsistent, bouncing between milder and colder trends, but it is worth noting the trend has been to the colder side the past few runs.
In other energy commodities, December West Texas Intermediate (WTI) crude oil futures tumbled $1.60, or 3.84%, to $40.09 per barrel. December Brent crude futures added $0.04, or 0.1%, to $41.77 a barrel. November gasoline futures fell $0.0484, or 4.07%, to $1.1395 per gallon. November heating oil futures dropped $0.0322, or 2.73%, to $1.148 per gallon.