U.S. natural gas futures rose 5% on Tuesday, extending gains to an eight-month high, as traders bet on another round of cold weather in December and firmer power demand, even as temperatures are expected to moderate next week.
Front-month gas futures for December delivery on the New York Mercantile Exchange was up 21.7 cents, or 5%, at $4.56 per million British thermal units (mmBtu) at 11:19 a.m. EST (1619 GMT). The contract has climbed to its highest since March 11.
“The market is expecting another blast of cold in December, and that’s keeping sentiment bullish despite the brief warm-up ahead,” said Phil Flynn, senior analyst for Price Futures Group.
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He added that expectations for stronger power demand in the coming weeks were also helping support prices.
The recent rally has kept the front-month contract in technically overbought territory for a ninth straight session. Analysts said any prolonged moderation in temperatures could slow momentum, but traders are watching forecasts closely to see what comes after the current warm-up.
“All in all, a bullish stance is still favored while we are also conceding to a significant price pullback of around 15-cents relative to yesterday’s close as we keep a strong hold on any long winter/short spring bull spreads,” analysts at energy advisory firm Ritterbusch and Associates said in a note.
“Besides the cold weather, a recent record pace of export activity has added to recent bullish sentiment. But we can also indicate a strong pace of production that has provided significant mitigation against the rising exports,” Ritterbusch added.
In the cash market, meanwhile, average prices at the Waha Hub in the Permian shale basin in West Texas remained in negative territory for a sixth session in a row as pipeline constraints trapped gas in the nation’s biggest oil-producing basin.
Meanwhile, Shell has challenged its defeat in an arbitration case against U.S. liquefied natural gas producer Venture Global in the New York Supreme Court, a legal filing seen by Reuters shows, weeks after rival BP won a similar $1 billion-plus arbitration.
Dutch and British power prices traded in a narrow range on Tuesday morning as mild weather keeps heating demand subdued and amid strong supply from Norway and liquefied natural gas (LNG).
SUPPLY AND DEMAND
The average amount of gas flowing to the eight big U.S. LNG export plants has risen to 17.8 bcfd so far in November, up from a record 16.7 bcfd in October, and those flows are on track to increase further in coming months.
Financial firm LSEG projected average gas demand in the Lower 48 states, including exports, would jump to 118.6 bcfd this week from 108.6 bcfd last week on colder weather, before easing to 114.7 bcfd as temperatures moderate.
LSEG said average gas output in the Lower 48 states has risen to 109.0 billion cubic feet per day (bcfd) so far in November, up from 107.0 bcfd in October and a record monthly high of 108.0 bcfd in August.
Record output so far this year has allowed energy companies to inject more gas into storage than usual. There was about 4% more gas in storage than normal for this time of year.
LSEG estimated 228 heating degree days (HDDs) over the next two weeks, compared with 246 estimated on Monday. HDDs, which measure the number of degrees a day’s average temperature is below 65 degrees Fahrenheit (18 degrees Celsius), are used to estimate demand to heat homes and businesses.
(Reporting by Sherin Elizabeth Varghese in Bengaluru Editing by Nick Zieminski)
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