The Energy Buyer's Guide | 09.23.2024
Natural gas futures push to multi-month highs amid tight fundamentals and a shrinking storage surplus.
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- Natural gas futures were higher last week across the board, with benchmark pricing pushing to two-month highs on Friday afternoon.
- Market fundamentals came in especially tight compared to the same week in 2023, as lingering cooling needs prop up demand and producers continue to throttle output.
- Spot natural gas and power prices were up across virtually the entire country, with Midwest markets showing the most significant increases.
- Near-term weather forecasts show warmer-than-normal temperatures persisting through the next two weeks, with heating degree days expected to start picking up in early October.
Natural gas futures rallied last week across the forward curve, with the prompt-month contract extending gains above previous resistance and the upcoming Winter 2024-25 strip bouncing from $3.00 support. The front of the curve ended on Friday at the highest level since early July, while winter finished at about a one-month high. The prompt-month contract has now finished higher in four consecutive weeks, with the market posting a strong recovery following weakness into the September NYMEX expiration last month. October is set to expire on Thursday, and barring a dramatic turnaround back to the downside, that contract looks poised to roll off the board well above recent contract settlements. Most of the upward movement beyond the prompt month was observed on Friday afternoon, with buying interest picking up through Summer 2025 in the final hours of trading prior to the weekend.
The market may finally be responding to tight underlying fundamentals, with production lagging year-ago levels by a widening margin against a backdrop of strong structural demand and exports. This dynamic has led to a dwindling storage surplus, with inventories as of last Thursday’s report now showing the lightest cushion to historical benchmarks since February. All indications are that this trend will continue. Stocks are currently on pace to finish the summer about in line with the five-year average, setting the stage for a potentially risky winter depending on weather patterns. Even a normal season would yield a significant year-over-year jump in space heating needs when compared to the historically mild winter of 2023-24.
Based on recent price action and an apparent change in market sentiment in recent weeks, we are shifting our outlook from neutral to bullish for the 1-3 month period. We continue to see more upside risk than downside opportunity stretching through next summer.