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James Hyerczyk
Natural Gas
Natural Gas

Buyers have returned early Tuesday, putting more upside pressure on natural gas prices well ahead of Tuesday’s regular session opening and after yesterday’s 2.78% jump in prices. Traders are blaming the surprise surge in prices on a rare combination of maintenance and weather issues.

Higher-than-usual natural gas demand for this time of year caught the short-sellers off-guard, forcing them to cover their positions aggressively on Monday. This was due to heavy maintenance of nuclear power plants. Furthermore, the weather forecasts changed unexpectedly and are now showing a possible surge in demand before the end of this year’s shoulder season.

At 0726 GMT, November Natural Gas futures are trading $3.119, up 0.025 or +0.81%.

The Supply/Demand Numbers

“U.S. power burn is set to rise 1.1 Bcf and stand at 29.4 Bcf Monday, up 22.3 Bcf compared to the same day last year”, according to S&P Global Platts Analytics. “The bulk of the increase is likely to come from the Northeast, with the National Weather Service calling for warmer-than-usual temperatures across much of the eastern U.S., over the next six to 10 days.”

Platts Analytics estimates show “power burn is likely to climb to 31.1 Bcf/d over the next week, likely on rising cooling demand.”

“Heating demand may also see a boost over the next seven days, likely due to cooler-than-normal temperatures across much of the Northern and Western U.S.” Additionally, Platts Analytics projects “residential and commercial demand to tick up and average 15.3 Bcf over the next two weeks, largely in line with demand seen over the same time last year.”

Platts also said, “On the supply side, U.S. dry gas production is estimated to drop 2.2 Bcf on day and stand at 81.7 Bcf Monday”, the data showed. “Much of the decline are likely to result from drops in the Northeast, Southeast and Texas region. Output was last seen at this level on August 16.”

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Forecast

We’re in a news and technical momentum driven market with prices not seen in months. However, it’s still too early for this kind of move so chasing prices higher at this time of year carries some huge risks. The weather we can deal with and once the nuclear power stations finish their maintenance, supply is expected to increase so we think the best opportunity will be on the short side, once a short-term top is reached.

We’re going to be bullish going into the winter heating season, but we’d like to see more favorable prices. Unfortunately, everyone will be looking to buy a dip. Potential downside targets are former tops at $3.033 and $2.986. However, the best value zone remains $2.825 to $2.691. I not confident, however, that we’ll see prices in that range over the near-term.

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