The Energy Buyer's Guide | 11.18.2024
Natural gas futures pushed higher last week ahead of the back of rising residential and commercial demand.
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- Natural gas futures were higher last week amid increasing heating demand and lagging domestic production, but the front of the curve was so far unable to push past the $3.00 per MMBtu level
- Temperature forecasts indicated a shift to a more seasonable pattern in key markets in the Midwest and East for the last week of November into early December
- Storage inventories increased by 42 Bcf during the first week of November and are now expected to fall just shy of 4 Tcf prior to the onset of winter withdrawals
- ERCOT saw a price spike near the $5,000-per-MWh market cap last weekend, illustrating the risks that market faces during periods of low wind output even absent major demande month
Natural gas futures were higher across the board as the market anticipated rising heating needs. The prompt-month contract posted a significant gain on the week but finished well off of the weekly highs north of $3.00 per MMBtu. The market ran into stout resistance near that psychologically important benchmark, mirroring the price action in early October the last time the $3 level was approached. Gains were consistent through the rest of the Winter 2024-25 strip, while Summer 2025 was up to a lesser extent. The forward curve remains in relatively steep contango, with deferred seasonal strips holding relatively steady even as volatility has picked up closer to the front of the forward curve.
The focus of the market is squarely on the start of the withdrawal season, which was delayed two weeks due to lingering warmth across key population centers. After a brief period of above-normal temperatures in the Midwest and East, we are expected to see a shift closer to normal, which will increase heating needs considerably in the next two weeks. As demand rises, lagging supply will become more apparent. Production volumes strengthened near the end of last week, but output is well below the record levels experienced at this point in 2023. This dynamic could lead to relatively strong withdrawals during the coming weeks and an eroding storage surplus over the course of the season.
So far, forward pricing has not proven strong enough to elicit a needed supply response ahead of the upcoming winter. Pinebrook Energy Advisors maintains a bullish outlook for at least the next 12 months. We see distinct fundamental risks associated with rising LNG export volumes and structural demand against a backdrop of increased producer discipline. We expect storage inventories to flip to a deficit over the course of the upcoming winter, setting the stage for a more supportive market environment in 2025.
