Colder temps heat up natural gas but outlook is mixed

Natural gas prices got a slight bump on Tuesday morning ahead of the week’s colder temperatures, but the run into December could bring unseasonable warmth.

Natural gas trading

Short term colder weather on its way to the USA…

We write about this every week. Temperature changes and forecasts have a big impact on natural gas prices. If you’re a gas trader, you’ll already know this. Last week, prices fluctuated on changing weather predictions, and they’ve done the same again at the start of this one.

At the time of writing, Henry Hub natural gas futures were up 3.89% on the day, trading over the $5.00 level. Some solid progress has been made by natural gas at time when more bearish analysts were saying a $4.50 market correction was likely on the cards.

Cold weather systems are on their way this week.

Natural Gas Weather says: “A chilly weather system with rain and snow will track across the Great Lakes and East Mon-Tue w/highs of 30s to 40s and lows of 10s to 30s. Most of the rest of the US will be mild to nice w/highs of 50s to 70s.

“A mild break is expected across the East mid-week w/highs of 40-60s for a swing back to lighter demand. However, a fresh cold shot will drop into the Midwest and track across the East Fri-Sat w/lows of 10s to 30s for a swing back to stronger national demand. Overall, national demand will swing between MODERATE and HIGH every few days over the next week.”

…but early December forecasts put traders in a bearish mood

The life of a natural gas trader eh? Warmer temperatures might be on their way in December.

“The change is a result of a deeper trough over the eastern Pacific, alongside waning of the North Atlantic block,” Maxar Weather Desk said in its latest forecast. “This allows for a much warmer pattern for most of the U.S. and Canada, where bellows are limited to the East Coast at the start of the period.”

Natural Gas Weather backs this up. Almost all of the US is expected to see temperatures be much warmer than usual between the 1st and 7th of December.

“The focus this week is likely to turn to how long the coming warmer than normal early December U.S. pattern lasts, because the further into December it takes for blue weather maps to return, the more pressure it puts on bulls to reduce risk,” NatGasWeather said.

That market correction might still be on the cards then. Price movements are so tied in with the weather that it makes it tough for traders to really get a grasp on things. At the start of the month, all forecasts suggested an icy blast was on its way and that December would be chilly, thus pushing up US natural gas futures prices.

To summarise: short term gas demand for the week up to 26th November: moderate to good. After that? Probably weaker.

A quick look at US gas inventories

US working gas in storage was 3,644 Bcf as of Friday, November 12, 2021, according to EIA estimates. This represents a net increase of 26 Bcf from the previous week.

Stocks were 310 Bcf less than last year at this time and 81 Bcf below the five-year average of 3,725 Bcf. At 3,644 Bcf, total working gas is within the five-year historical range.