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James Hyerczyk
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Natural Gas

Natural gas futures are trading higher on Monday shortly before the regular session opening. Traders are likely reacting to Tropical Storm Sally which gained strength in the Gulf of Mexico west of Florida over the weekend and was poised to become a category 2 hurricane.

The storm is disrupting oil production for the second time in less than a month after Hurricane Laura swept through the region. We have to assume that some natural gas production has also been shut down although we haven’t been able to confirm that news.

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At 10:43 GMT, December natural gas futures are trading $2.789, up $0.045 or +1.64%.

This tropical storm appears to be headed toward New Orleans, Louisiana and is currently well east of the oil and gas facilities hit by Hurricane Laura so we could see a different response by traders.

One has to assume that any drop in production will be supportive for prices, but lower demand and the large supply could offset these gains.

Short-Term Weather Outlook

According to NatGasWeather for September 14-20, “High pressure will rule most of the U.S. early this week with highs of 70s and 80s, locally low 90s across Texas and the Southeast and hotter 90s – 100s for California and the Southwest. Tropical storm Sally will bring gusty winds and heavy rain over E. Louisiana and Mississippi late Monday and Tuesday. During the second half of the week a cool shot will race across the Midwest and Northeast with showers and highs of 60s to 70s, while remaining comfortable elsewhere besides the hotter southwest. Overall, national demand will be moderate to low.

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LNG Demand Updates

Feed gas operations resumed at the Sabine Pass liquefied natural gas (LNG) facility last week but the pace has been slow, raising concerns about storage overflows.

“Storage remains at record levels in some regions,” Bespoke Weather Services said, “so the higher LNG volumes will need to sustain themselves to steer us clear of a containment scenario, something that gets even dicey if weather continues to look tame.”

So far the path of Tropical Storm Sally is moving east of the Sabine Pass so LNG production may not be affected. However, shipping in the Gulf may slow until the storm passes.

Daily Forecast

We could see some short-covering until the weather forecasters pinpoint the direction of Tropical Storm Sally. It is expected to become a category 2 hurricane, which is dangerous, but not as strong as a category 3 hurricane which could inflect much more devastation. Traders are likely to adjust positions depending on the strength and direction of the hurricane as it approaches landfall.

The big concern this week remains the strong possibility of containment issues. If storage continues to grow then this will pressure prices since producers may start to dump natural gas in the spot market at below-market prices.

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

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