The Energy Buyer's Guide | 09.03.2024
Winter natural gas hits a 3-year low following the last major heat of the summer
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- Natural gas futures were lower across the board last week surrounding the September 2024 NYMEX expiration on Wednesday; the Winter 2024-25 strip settled on Friday at its lowest level in more than three years
- PJM saw an early-week spike in demand, with Wednesday’s peak load registering as one of the 5 highest of the summer and likely setting one of the 5 coincident peaks
- Spot power and gas prices remained mostly in check across the country despite heavy cooling needs early in the week, with no significant price spikes in major market areas
- Natural gas storage inventories increased by 35 Bcf during the week ended August 23, with stocks continuing to lose ground to the five-year average as the summer progresses (Link)
- Temperature patterns are expected to be mostly mild through at least mid-September, with energy demand likely retreating to its lowest overall levels since early June (Link)
Prompt-month natural gas traded lower last week, but the front of the curve remained confined to the range that has defined price action since July. The September 2024 NYMEX contract expired on Wednesday at $1.930 per MMBtu, which was only marginally higher than the August expiry a month prior. This brings the average 2024 settlement to $2.10 per MMBtu, which is nearly 60 cents lower than the first 9 months of 2023. October initially looked poised to give up its rollover premium after coming onto the front of the forward curve on Thursday, but that contract ultimately stabilized in the wake of the storage report and held mostly steady going into the holiday weekend.
Weather patterns are expected to be generally bearish over the coming weeks, with population-weighted cooling degree days forecast to come in well lower than normal. However, the market continues to recognize the narrowing storage surplus and the generally tight underlying fundamental balance. These factors, along with expectations for growth in LNG export demand over the next year, help justify the steep contango beyond the front of the forward curve.
Notably, the Winter 2024-25 strip finished the week just below $3.00 per MMBtu. This marks the first time that strip has posted a daily settlement below $3 since 2021. That level has acted as reliable support for Winter 24-25 all summer, and the price action over the coming days will be telling as to whether the market is in store for further downside or if the support surrounding the psychological benchmark will ultimately hold. End users who already have a healthy base layer of winter coverage can afford to be more opportunistic with the next purchase. It is prudent to monitor the price action closely and be ready to add to forward hedge positions if downward price action accelerates in the coming days or weeks.