Natural Gas Futures Rise To $ 6.39 In Latest ‘Extremely Dangerous / Volatile’ Price Change

Natural gas futures broke through the $ 6,000 / MMBtu mark for the second time this week, with US production falling significantly on Tuesday as concerns about global supply rocked the domestic market. November’s Nymex gas futures contract jumped 54.6 cents to $ 6.312. December gas closed at $ 6.432, up 52.6 cents on the day.

In one look :

  • Global factors at play in the latest gas price rally in the United States
  • The power still burns so hot as the coal runs out
  • Spot prices soar on sluggish production

Gasoline spot prices also continued to rise significantly despite the generally mild weather conditions in place across the country. The stubbornly strong power burns raised the national average of NGI’s spot gas. up to 32.0 cents Tuesday at $ 5.970.

Although the domestic supply situation has improved significantly over the past month, several maintenance events – common during the shoulder season – have caused production to drop sharply across the country.

Wood Mackenzie said the highest daily production data showed production falling from around 1.7 Bcf / d day / day to 91.2 Bcf / d as of early Tuesday. Northern Louisiana led the declines as production slipped about 335 MMcf / d along the Tennessee Gas and Gulf South pipelines.

Wood Mackenzie analyst Laura Munder said Gulf South began maintenance on Tuesday at Carthage Junction, which is expected to impact upstream expansion receptions, and at Magasco compressor stations, which would have an impact on the West 30 of Magasco in South TX (delivery). Both maintenance events are expected to continue through Friday.

Tennessee has no scheduled maintenance in progress, “but the fall is located at a collection system interconnect, so it’s likely unreported fieldwork,” according to Munder.

In the New Mexico portion of the Permian Basin, Transwestern Pipeline began annual testing at the WT-1 compressor station in Carlsbad, reducing capacity from about 630 MMcf / d to about 280 MMcf / d through Friday.

Overall production in the Rockies was down about 300 MMcf / d, with the largest drop in the Denver-Julesburg Basin along the Colorado Interstate Gas Highway. Munder said there was no maintenance associated with the reduction in production.

Even with the large drop in production, the declines are expected to be temporary and may fluctuate throughout the fall season, before significant cold weather arrives.

‘Feast or famine’

Meanwhile, gas needed for export facilities is also well below previous highs. Although Europe and Asia continue to set price records almost daily as the two regions compete for limited gas supplies, U.S. demand for feed gas has struggled to reach the high levels of summer.

The Cove Point, Freeport and Corpus Christi LNG export terminals are all using less feed gas this week as various maintenance work is underway. NGI data showed deliveries to all U.S. terminals fell below 10 billion cubic feet on Tuesday, compared to more than 11 billion cubic feet on September 30.

Lower demand for feed gas, however, did not stop the rise in prices along the Nymex futures contracts. After temporarily rising above $ 6.00 on Monday, the November contract jumped to $ 6.392 amid increasingly worrying overseas sourcing.

“This highlights tight supplies in Europe and Asia which are driving other global markets up,” NatGasWeather said.

The firm favored US prices by taking the bullish path in the face of an otherwise bearish context. He pointed out that every drop in US prices over the past six months has been bought off, while surges in global prices further fuel the momentum.

“But we have to consider that US supplies have been trending increasingly downward over the past month – and will continue to do so through what should be all of October,” NatGasWeather said.

As of yet, this has little effect on US prices as they track world prices / uncertainty, according to the company. With tight supplies in Asia and Europe expected to continue, “extremely dangerous / volatile” price swings are expected in the coming weeks / months, “where entry and exit will be feasts or famines”.

EBW Analytics Group also highlighted recent business activity in a note to customers on Tuesday. Analysts at the company said that while the European premium on Nymex futures was around $ 5,000 in July, global shortage prices sent winter premiums to Nymex gas north of 30,000. $. In a probability-based scenario approach that EBW took when analyzing winter Nymex futures, even a 5% probability of a peak of $ 30,000 could amount to a risk premium. of $ 1,500, analysts said.

“Although the chances of an increase in global LNG prices appear slim, the surge in futures contracts on title transfer facilities remains a key factor in the onset of winter for Nymex gas,” said the EBW team. “With a 5% price convergence risk, if world prices approach $ 100,000,” as a recent market note from Citigroup Inc. suggests, “Nymex’s risk premiums could quickly increase by $ 3,000. additional. “

What are the forecasts for winter?

What will likely matter most in the future is whether temperatures in Europe, Asia and the United States will be warmer or cooler than normal for November and December.

Although it is still too early to say for sure, weather models and the La Niña baseline state that October is still on track to compete with October 2016 in terms of the lowest demand, according to Bespoke Weather. Services. The only cold in the pattern over the next two weeks is concentrated in the western interior, with the eastern half of the nation “very, very warm”.

[Actionable Insight: Did you know that NGI is one of only two Price Reporting Agencies that include trade data from the Intercontinental Exchange. Find out more.]

The forecaster expects this pattern of weak demand to continue through the end of the month, “if not at least until early November.”

As for Europe, Maxar’s weather office expects below normal temperatures to cover the southeast and the mainland. Above normal temperatures are forecast for northern and western Europe.

“The model acquires the influence of an upper ridge centered in and around the British Isles, while the observed elevation trough to the south-east” over the six to ten day period remains in place, according to the forecaster. “The ensemble models are generally well aligned with the model over there,” although the Canadian ensemble dataset poses a hot risk for forecasts in northern Germany and western France .

The Maxar team said the composite 30- and 60-day outlook for Asia continues to feature near-normal temperatures across Japan. “However, the risks are colder across the country in October and November.”

The money is still climbing

Spot gas prices continued to inflate on Tuesday as electricity consumption continued to trigger on all cylinders despite the absence of strong weather-induced demand. With coal nearly exhausted in power generation, gas used for power generation has remained strong all summer and even so far this fall despite the much higher gas price environment. .

Force Majeure independent analyst Celsius Energy said energy use stood at 36.0 billion cubic feet on Monday, up 6.6 billion cubic feet / d from year levels last. Natural gas consumption accounted for 44% “remarkably high” of the stack, thanks to low wind generation and above-average cooling demand.

“It won’t last as wind generation increases, but it’s still impressive,” Celsius said.

When it comes to prices, the Northeast saw some of the biggest increases as prices came back above $ 5,000 and even hit the $ 6,000 territory in some places. Tenn Zone 6,200L spot gas traded between $ 5.880 and $ 6.250, an average of 59.0 cents higher that day at $ 5.995.

Tenn Zone 4,200L posted the strongest rise in the Appalachians, going from 88.5 cents to $ 5.715. Hikes along the Tennessee system appear to be tied to the likely fieldwork and the resulting drop in production.

Prices in the Southeast and Louisiana increased by more than 20 cents. Cash at Transco Zone 5 rose 23.0 cents to $ 6.330, while Henry Hub rose 35.0 cents to $ 6.225.

Similar price increases were seen across much of the rest of the country, while locations in California declined from the previous day’s peaks. Medium SoCal border. fell 10.5 cents day / day to an average of $ 6.415 for Wednesday’s gas day.

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