The following is a summary of last week’s market activity and the market outlook:
- It was a very strong week for near-term natural gas. Prices were up due to bullish weather forecasts that are calling for colder weather early on and a modestly bullish storage report versus expectations. The Prompt Month, 12-month Strip and Calendar ’14 prices were up 26 cents, 21 cents and 20 cents respectively. And, the spread between Calendar ’14 and Calendar ’17 prices has narrowed from 64 cents on August 7, 2013, down to 30 cents on October 11, 2013.
- Last week the EIA reported a 90 Bcf injection into storage, which was below expectations but above last year (73 Bcf) and the 5-year average (84 Bcf). In addition, 22 out of last 23 weeks have had larger injections than the same week last year. Current inventory through October 4 is 3,386 Bcf, which is 3.7% below last year and 1.6% above the 5-year average. It’s important to note that there will be no report this week due to U.S. government shutdown, which has impacted the Energy Information Administration. EIA closure adds uncertainty and uncertainty is generally bullish for the short-term.
- Changing weather is key driver of prices this time of year. The 1- to 5-day forecast is mild, with cold coming thereafter. Last November was cool and this year is forecast to be warmer. Winter forecasts are generally released in October and, so far they are inconsistent but looking cooler than last winter. The expected late October cold may be causing a winter rally a bit earlier than usual however for this rally to be sustained, there will need to be ongoing cold. At this point, winter prices will likely command a risk premium until we see how November-December weather actualizes.
- There is little reason to expect a breakout of the market’s range anytime soon. Shoulder month weather is mild and hurricane season has been non-existent, but prices are likely to hold onto a winter risk premium until we see how November and December weather actualizes. The Prompt Month has been between $3.20–3.80 and the Calendar Strips have been mostly between $3.70-$4.50 since early 2012.
- Hurricane season is nearing its end and Tropical Storm Karen resulted in approximately 10 Bcf of lost production.
The Prompt Month has been between $3.20–3.80 over the last several months and we are currently at the top of this range. Long-term prices have moved up less and are within their range–which may still present value.