RISING HEATING-DEGREE DAY CREATING A BULLISH NATURAL GAS SPOT MARKET CATALYST
natural gas

RISING HEATING-DEGREE DAY CREATING A BULLISH NATURAL GAS SPOT MARKET CATALYST

Samarth Mercantile

*Europe is short of natural gas and cold winter keeping prices high

*The pandemic remains a wildcard globally and in Europe in particular


Europe is short of natural gas – dangerously short. A cold winter could mean a severe crunch, and utility bills are headed higher, burdening ordinary people, and weighing on the economic recovery from the coronavirus pandemic. Russian President Vladimir Putin has promised to help fill European gas storages as energy prices soar, but supply shortages and political tensions have continued to rattle energy markets, keeping prices high.

At this point, it looks like the market is struggling to get above the $5 level, but if we can, it could kick off a bit of a recovery. Keep in mind though, we have seen weaker structure as of late, so it does make a certain amount of sense that we could continue to go lower. If we do, then we start to look at the $4.50 level, possibly the $4 level after that.

Natural gas futures on Friday rallied for the fourth time in five trading sessions, lifted by ongoing robust levels of US exports and expectations for stronger weather-driven demand in coming weeks. The December Nymex contract gained 3.57% and settled at $5.07 MMBtu. January rose to $5.15. The pandemic, however, remains a wildcard globally and in Europe in particular.

For next week’s EIA print, preliminary modeling suggested residential/commercial demand is set to increase 5 Bcf/d week/week to around 28 Bcf/d withdrawal. Though week-to-date demand has still lagged the five-year average by roughly 2.2 Bcf/d, the firm said Friday. Higher physical demand may coincide with rising heating-degree day, potentially creating a bullish spot market catalyst, the analysts said. Ahead of the next wave of weather, Chicago Citygate ticked up a half-cent to $4.815.

The Energy Information Administration (EIA) on Thursday reported a 26 Bcf injection into Lower 48 gas stocks for the week ended Nov. 12. The build was in line with expectations and lifted stockpiles to 3,644 Bcf overall, though inventories were still about 2% shy of the five-year average of 3,725 Bcf. The 26 Bcf build follows a tight start to November, with a 7 Bcf build the week prior.

US EIA said that agency predicts natural gas production in the United States will grow another 4% next year. Production has recovered more vigorously than oil since the height of the pandemic and is on track to exceed pre-pandemic growth forecasts through 2024. Following a pandemic-induced 25% drop in U.S. oil production between November 2019 and May 2020, oil and gas activity is on the rebound.

Current prices are a good balance between being high enough to support increased drilling activity in natural gas-based plays, but low enough to continue to attract investment in chemical manufacturing and LNG export in the Gulf Coast region. Rig counts in US, meanwhile, recovered to 508 in September 2021, more than double the pandemic trough seen in August 2020, but still less than half that reported in 2018 and 2019.

(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 22-11-2021

Riddhi Siddhi Bullions Ltd

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