Last week futures prices for natural gas contracts jumped on the news of an emerging cold front. While storage inventory levels are now back above the five-year average following a weak withdrawal reported on the last EIA storage report for year 2021, ending inventory balances continue to be of concern for many investors.
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Bearish weather news along with renewed fears of a new COVID strain are dampening global demand forecasts. The price spread between the March and April contracts is referred to as the “widowmaker” due to its volatility. If 30 and 60 day forecasts show above-average warmth, expect to see further selloffs.
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Prices rallied higher as colder weather moved into the Central, Northeast, and Southeast regions of the U.S. While market attention was largely given to weather conditions and winter storage inventories, some traders did take note of the growth in daily supplied gas.
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With strong October injections curtailing the storage deficit concerns driving winter prices higher, the U.S. market will continue eyeing shortages in Europe and Asia. The NUS model shows daily imbalances beginning to tighten for the first week of November, a sign that we’re close to the end of injection season.
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Good news for end-users looking for an opportunity to hedge near-term exposure. Prices will likely march higher when the first wave of winter weather moves into Europe and Asia. Clients hoping to place defensive price hedges for the first quarter of 2022 should look to make those purchases as soon as possible.
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Weather forecasts for the balance of October and the early days of November show above-average warmth. This should yield modestly sized injections into storage over the next three weeks and put downward pressure on the November contract price.
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