Although temperatures are expected to moderate next week, U.S. natural gas futures rose 5% on Tuesday to an eight-month high as traders bet on another cold spell in December and solid electricity demand.
New York Mercantile Exchange front-month gas futures for December delivery rose 21.7 cents, or 5%, to $4.56 per million British thermal units (mmBtu) as of 11:19 a.m. ET. Contract volume reached its highest level since March 11th.
“Markets are expecting another cold spell in December, which keeps sentiment bullish despite the temporary warming,” said Phil Flynn, senior analyst at Price Futures Group.
He added that expectations that electricity demand would rise in the coming weeks were also supporting prices.
The recent rally has kept the month-on-month contract in technically overbought territory for nine consecutive sessions. Analysts say a prolonged easing in temperatures could slow momentum, but traders are keeping a close eye on forecasts for what will happen after the current rise in temperatures.
“Overall, while our bullish stance remains supported, we also accept a significant price decline of approximately 15 cents compared to yesterday’s closing price as we hold to our bullish spread with a long winter and short spring,” analysts at Ritterbusch & Associates, an energy advisory firm, said in a note.
“Besides the cold weather, the recent record pace of export activity has added to the recent bullish mood. However, the strong pace of production could also point to significantly moderating export growth,” Ritterbusch added.
Meanwhile, in the physical market, the average price of Waha Hub, located in the Permian shale basin in West Texas, remained in negative territory for six consecutive sessions as pipeline constraints caused gas to back up in the country’s largest oil-producing basin.
Meanwhile, Shell is challenging its loss in an arbitration case against U.S. liquefied natural gas producer Venture Global in the New York Supreme Court, according to legal filings seen by Reuters. It comes weeks after rival BP won a similar arbitration case worth more than $1 billion.
Dutch and British electricity prices traded in a narrow range on Tuesday morning as mild weather curbed heating demand and strong supplies from Norway and liquefied natural gas (LNG).
supply and demand
The average amount of gas flowing into the eight major U.S. LNG export plants has increased to 17.8 bcfd so far in November, up from a record high of 16.7 bcfd in October, and these inflows are likely to increase further in the coming months.
Financial firm LSEG predicted average gas demand in the bottom 48 states, including exports, would jump to 118.6 bcfd this week as the weather gets colder, from 108.6 bcfd last week, before slowing to 114.7 bcfd as temperatures become milder.
Average gas production in the lower 48 states rose to 109 billion cubic feet per day (bcfd) so far in November, up from 107.0 bcfd in October and a monthly high of 108.0 bcfd in August, according to LSEG.
Record electricity generation so far this year has allowed energy companies to inject more gas into storage than in previous years. Stored gas was about 4% higher than normal during this period.
LSEG estimated heating degree days (HDD) for the next two weeks at 228, compared to Monday’s estimate of 246. The HDD measures the number of degrees that the average daily temperature falls below 65 degrees Fahrenheit (18 degrees Celsius) and is used to estimate heating needs for homes and businesses.
(Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Nick Zieminski)
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