Natural Gas Price Fundamental Daily Forecast – Focus Shifts to Potential Production Disruption

Front-month U.S. natural gas futures closed sharply higher on Friday after rebounding from an early session setback. The rally was fueled by excessive heat last week, LNG demand optimism and the possibility of two tropical storms in the Gulf of Mexico. The strong close has put the market in a position to challenge multi-month highs next week.

On Friday, October natural gas futures settled at $2.573, up 0.072 or +2.88%.

Excessive Heat Drives Spot Prices higher

According to Natural Gas Intelligence (NGI), “Record-high temperatures on the West Coast and typical August heat and humidity in the South and Southeast this week drove sharp gains in natural gas prices across the Lower 48 for the August 17-21 week. Led by massive increases in California, NGI’s Weekly Spot Gas National Average jumped 20.5 cents to $2.255.”

Demand across the California Independent System Operator footprint fell short of setting a record, even though loads reached well over 47,000 MW midweek, NGI reported. Prices rose to their highest levels of the summer so far before coming back to earth. SoCal Citygate traded as high as $14.00 before falling back to average $7.040, up $3.205 week/week.

Prices in the Desert Southwest also rallied. Additionally, double-digit gains extended across Texas, Louisiana and the Southeast as well. However, it was a different story in the East, where the absence of heat drove prices lower for the week.

Optimistic Outlook for LNG Demand

Traders attributed some of last week’s gains to a steady increase in liquefied natural gas (LNG) demand. NGI reported, “With Thursday’s deadline for cargo cancellations from Cheniere Energy Inc.’s terminals, and indications that fewer than 10 cargoes may be canceled for October, bullish traders pounced and sent the prompt-month to the highest settlement in months.

Two Hurricanes May Be Zeroing in on Key Production Areas

Two major tropical storms are forming and appear to have their sights set on the Texas Gulf Coast. A direct strike on the area forecast by the cone graphs deals with production, LNG exports and domestic demand.

NGI reported that two of the biggest operators in the deepwater Gulf of Mexico (GOM), PB plc and Royal Dutch Shell plc, on Friday had begun evacuating employees from platforms and rigs.

The National Hurricane Center (NHC), in its Friday afternoon update, said on the forecast track, Tropical Storm Laura would move near or over Puerto Rico Saturday morning, and near the northern coast of Hispaniola late Saturday and early Sunday. Tropical Depression 14, which would become Marco if it strengthens as expected, was on track to approach the east coast of the Yucatan Peninsula of Mexico on Saturday before moving over the central GOM toward the northwestern Gulf on Sunday and Monday, NHC said.

For a look at all of today’s economic events, check out our economic calendar.