The Energy Buyer's Guide | 09.16.2024
Natural gas futures move in mixed directions amid Gulf hurricane and bullish storage report
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- Natural gas futures traded to two-month highs on the front of the curve while Winter 2024-25 and Summer 2025 gave up ground on the week.
- Hurricane Francine disrupted Gulf of Mexico natural gas production but also led to lower LNG exports and power generation needs. (Link)
- Winter basis futures were sharply lower in the West, while also giving up ground at Midwest and Northeast delivery points.
- Temperatures are expected to remain warmer than normal across the vast majority of the U.S., but these patterns are becoming more neutral to bearish for demand as the weeks progress. (Link)
Natural gas futures were mixed last week, with the front of the curve potentially clearing an important technical hurdle as the Winter 2024-25 and Summer 2025 strips returned back near recent lows. The prompt-month contract traded to a two-month high of $2.407 per MMBtu on Friday morning after breaching $2.30 resistance on Thursday following another lackluster storage report. However, the gains could not be sustained and a bearish intraday reversal sent benchmark pricing back lower to finish the week just above the key resistance zone. The price action in the coming days will be telling, indicating whether last week’s price action was the beginning of a more significant push higher or simply a false breakout of the recent trading range.
The fact that deferred futures traded lower on the week is a sign that any mounting near-term bullish sentiment has yet to pervade the entire marketplace. The shrinking storage surplus is a known factor at this point, and the contango in the forward curve is reflective of the risks that this brings to light. This is likely the primary reason why the upcoming winter strip has been steady in comparison to the rally in prompt-month futures, holding onto its relatively steep premium. The downside opportunity between now and the start of winter is likely very limited from current price levels. Once the season gets started, realized weather patterns will dictate the direction of pricing, which will open up more downside potential, but also bring about exaggerated upside risk. For energy users that value price certainty and want to be insulated from some degree of upside risk, it is prudent to continue building a fixed forward position for Winter 2024-25 and consider increasing coverage to targeted pre-season levels.