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US natural gas futures continue to reel from body blows thrown by predicted warm weather.

Natural gas trading

Warm temps return to haunt natural gas prices

Yet more weather woe for natural gas bulls this week.

Natural gas prices took a tumble across the whole of last week with lower prices continuing into trading on Tuesday morning. Henry Hub, while up 1.66% on the day at the time of writing, continues to trade around the $3.751 level.

Overall, Henry Hub futures are down 11% across the week so far.

As ever, price action has been dictated by the weather. Warm temperatures forecast for last week look set to remain in place, possibly wiping out trader expectations that a winter rally was on its way.

Natural Gas Weather states: “A cold shot will linger across the Midwest and Northeast through Wednesday w/lows of -0s to 30s for stronger national demand. The southern US remains comfortable with highs of 50s to 70s.

“After the current cold shot exits the Northeast late Wed, warm high pressure will become established over the southern and eastern US w/highs of 50s to 80s for light demand. The Northwest will be the nation’s only cool region this weekend into next week as weather systems bring rain, snow, and highs of 10s to 40s.

“Overall, national demand will be MODERATE today into Wednesday, then LOW-VERY LOW after.”

The question for natural gas traders now is how low will prices go? The lowest level discussed regarding January’s contract seems to be around $2.745. Things may get worse before they get better. The impetus is with the bears right now.

A quick look at EIA natural gas storage data

This week’s EIA gas inventories report lands on Thursday afternoon UK time, but we may get some indicators of what to expect with the most recent data.

Working gas in storage was 3,564 Bcf as of Friday, November 26th, 2021, according to EIA estimates. This represents a net decrease of 59 Bcf from the previous week.

Stocks were 375 Bcf less than last year at this time and 86 Bcf below the five-year average of 3,650 Bcf. At 3,564 Bcf, total working gas is within the five-year historical range.

This is broadly in line with market expectations. The median drawdown expected by Bloomberg and Reuters polls for the November 26th report was 58 Bcf.

Natural gas price volatility to continue into 2022?

Natural gas could be facing another volatile year in 2022 after a crazy 18 months.

We’ve seen prices swerve from record highs to record lows across the pandemic. More could be on the cards. It all depends on how the demand picture shifts across the coming months.

Europe, for example, is about to head into the winter months with the lowest level of working gas for decades. Storage facilities across the EU are at 70% capacity, compared with 85% this time last year.

No promised Russian gas is on its way. Nordstream 2 will also not start pumping gas for several months.

Asian LNG demand, on the other hand, has grown to 21 million tons this year. The APAC region has rebounded strongly from the pandemic, in terms of gas demand, so LNG export markets might remain hot.

Liquid natural gas throughput at US export terminals has been floating around record levels in recent months. Demand from Asia and Europe may help put a support under prices as 2022 progresses too.

We are talking about a weather-sensitive industry here, however. Our most recent gas coverage has shown price action affected heavily by shifts in weather patterns. Gas storage performance will be crucial if next year proves to be a cold one.

Should winter 2021/2022 prove to be colder, depleting stored gas across Europe, 2022 could be another year of volatile natural gas prices in Europe and Asia, with possible new records in sight.

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