Posted: Nov. 19th 2020
Research Natural Gas Storage Report – 19 November 2020
US natural gas inventories increased by 31 Bcf for the week ending November 6, compared with the five-year (2015–19) average net withdrawal of 24 Bcf. Working gas stocks total 3,958 Bcf, which is 231 Bcf higher than the five-year average and 293 Bcf higher than last year at this time. Analysts’ expectations had been for an injection of 20 Bcf. Over the last few weeks, the natural gas market has been flip-flopping between injections and withdrawals based on short-term heating demand. In the previous week ending November 6, we experienced colder than normal weather, which resulted in a withdrawal in the report. However, a nationwide mild weather scenario for the week ending November 13 led to an injection on this week’s report. Because the actual injection was bigger than the market’s expectation, DEC20 NYMEX contracts became more bearish. The Dec20 contract was already down 10 cents in overnight trade, as updated weather outlooks showed above normal temperatures until early December. The surprise beat on the weekly injection figure helped drop the December contract to an intra-day low of $2.525. The contract found buying interest at this level and rallied to almost $2.65 before ending the open outcry session at $2.57. The weakness in December also spread into 2021 – dropping 10.5 cents to trade at $2.703. Even cal22 showed some weakness and was down 5 cents on the day at $2.687. Dec20 contract became the prompt month contract on October 29 at $2.769. Since then, the Dec20 contract has rallied to a high of $3.396 while posting a low of $2.373. With the Thanksgiving holiday quickly approaching and the expiration of the Dec contract occurring next Wednesday, trading is likely to get very choppy over the next few sessions. December’s weakness and the lack of some early cold are beneficial to those end users that still have 2021 open NYMEX exposure to cover. The market has already been demonstrating its price volatility without any sustainable cold weather. With both current and forward-looking supply vs. demand imbalance still looking bullish in 2021, the right amount of cold to spur heating demand would likely send peak Jan21-Mar21 prices into the $4.00-$5.00 range while dragging the balance of 2021 and early 2022 along for the ride. Open 2021 positions should be covered by now and initiation of 2022 hedging should commence.