In a notable rebound, U.S. natural gas futures saw a 3% surge on Thursday, reclaiming the mid-$3 range observed two weeks ago. This uptick in natural gas prices was attributed to a storage build for the previous week that was smaller than expected and concerns arising from an impending data blackout regarding associated gas production until mid-November.
The most active December gas contract on the New York Mercantile Exchange‘s Henry Hub settled at $3.477 per million metric British thermal unit (mmBtu) after an increase of 10.1 cents, reaching a session high of $3.543.
The rally ensued following the release of the U.S. Energy Information Administration’s storage report, indicating a 74 billion cubic feet (bcf) injection for the week ending October 20. While this figure was higher than the 61-bcf injection recorded during the same week in the previous year and exceeded the five-year average increase of 66 bcf for this time of year (2018-2022), it was below the 80-bcf build forecast by Wall Street analysts tracking natural gas.
Gelber & Associates, an energy trading advisory based in Houston, noted, “The EIA’s storage report came in at 74 Bcf, lower than the analyst average.” They also mentioned that near-term contracts along the forward curve saw price increases in response to the data release and have witnessed significant rallies since.
Moreover, Gelber & Associates highlighted that most weather models were anticipating notably colder temperatures in the coming week across the Lower 48 states. This development is expected to have a positive impact on the forthcoming gas storage report.
The absence of a key report from Rescom on associated gas, which will not be published for another three weeks, led traders to seek a higher risk premium in the market on Thursday. Associated gas is a by-product of shale oil drilling and has contributed to the record daily gas production of 103 bcf witnessed this week. The report suggested, “The potential for price volatility on the 16th is high.”
The year had been challenging for gas bulls until recently, with record gas production, mild weather, and variable demand for liquefied natural gas contributing to a significant stockpile overhang. However, in the past two months, several positive developments have brightened prospects for gas longs, including a reduction in production, consistent power generation demand, improved LNG uptake, and a gradual decrease in stored gas.
The previous week’s storage report had caused concerns in the gas market, as it exceeded forecasts. This pulled December gas prices down to $2.88, indicating a potential return to the mid-$2 range that had prevailed between February and July. Nevertheless, the latest EIA report appears to have restored confidence among gas bulls.
The EIA’s report for the week ending October 20 revealed total storage at 3.7 trillion cubic feet (tcf), marking a 9.2% increase compared to the previous year and a 5.2% rise from the five-year average. According to Sunil Kumar Dixit, the chief technical strategist at SKCharting, gas bulls are poised to maintain their upward momentum, with stability above the 50-week Exponential Moving Average at $3.33 being a sign of strength for further gains, potentially targeting the 200-week Simple Moving Average at $3.78.
