The Energy Buyer's Guide | 10.28.2024
Natural gas futures recover from multi-year lows as traders anticipate the start of winter heating season.
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- Natural gas futures were sharply higher last week, gaining back a portion of the losses experienced since the early-month highs
- The 80-Bcf natural gas storage build announced on Thursday came in much stronger than market expectations but did not temper the renewed bullish sentiment in the futures market
- Spot energy prices were lower across every market area, with both natural gas and electricity prices dropping amid lackluster demand conditions
- Some weather models are now predicting moderating temperatures in the East, which would lead to higher heating demand than indicated by previous forecasts
Natural gas futures pricing reversed course following three straight weeks of losses that saw contracts through the upcoming winter plunge to multi-year lows. The market started showing bottoming signals on Monday, but accelerated higher on Wednesday afternoon and throughout the day on Thursday. Gains were focused on the front-month contract, spreading through the Winter 2024-25 strip and to a lesser degree into Summer 2025. The November contract clawed back more than a third of its recent declines, while the winter strip was able to push back above the psychologically important $3.00-per-MMBtu level.
The apparent shift in market sentiment was driven by indications in near-term forecasts showing moderating weather in key population centers beyond the first week of November. Amid the steep selloff from the October 4 highs, market participants appeared to be building in an extremely bearish weather scenario for the entire upcoming month. However, more recent outlooks now point toward rising heating needs near the end of the two-week period. Bullish sentiment was strong enough on Thursday to drive strong gains despite news of an unexpectedly strong injection into underground natural gas inventories. The government storage report showed a net injection of 80 Bcf during a week where most were expecting a number in the mid-50s. The counterintuitive price action was an indication that the market is looking past bearish near-term fundamentals and is instead refocused on evaluating winter risk amid lagging domestic production and strong structural demand. While improved from recent levels below 100 Bcf per day, domestic production volumes remain well below year-ago levels with no immediate signs of a surge higher akin to what was observed in October and November 2023. We will continue to maintain a bullish outlook for winter pricing until there are more concrete indications of improving domestic supply heading into the season.
