US natgas futures rise on forecasts for cold weather in late October

• Traders noted prices rose despite forecasts for warmer weather and lower heating use this week and next.
• Recent price swings in gas futures pushed at-the-money implied volatility, a determinant of option premiums, to 50.1% on Friday.
• Front-month gas futures for November delivery on the New York Mercantile Exchange rose 5.9 cents, or 2.6%, to settle at $2.339 per million British thermal units.

US natural gas futures rose to their highest in over a week on Tuesday on forecasts for cold weather and higher heating demand in late October and November.

Traders noted prices rose despite forecasts for warmer weather and lower heating use this week and next, and the expected return of inventories to normal levels for the first time in over two years.

Front-month gas futures for November delivery on the New York Mercantile Exchange rose 5.9 cents, or 2.6%, to settle at $2.339 per million British thermal units, their highest close since Oct. 4.

Recent price swings in gas futures pushed at-the-money implied volatility, a determinant of option premiums, to 50.1% on Friday, its highest since January. Over the past year, implied volatility has swung wildly, hitting a record high of 117.5% in November and a record low of 18.6% in April.

Over the next 6-10 days, the US National Weather Service (NWS) forecast temperatures in the Lower 48 US states would be warmer than usual east of the Mississippi River and cooler than normal over the Rocky Mountains. That cold will shift to the middle of the country over the 8-14 day period, with warmer temperatures concentrated on the East and West Coasts, the NWS said.

Refinitiv projected gas demand in the Lower 48 states, including exports, would reach 85.8 billion cubic feet per day (bcfd) this week as moderate weather reduces heating use, down from its previous forecast for the week of 86.5 bcfd on Monday.

For next week, Refinitiv projected demand would only reach 85.1 bcfd, which is also down from its previous forecast on Monday of 85.9 bcfd as some warm weather is expected to linger at the start of the week.

Gas flows to liquefied natural gas (LNG) export plants rose from 6.7 bcfd on Sunday to a record 7.0 bcfd on Monday after Dominion Energy Inc's Cove Point terminal in Maryland returned to service. That compares with an average of 6.4 bcfd last week.

Separately, traders noted the Gemmata LNG vessel docked at Kinder Morgan Inc's Elba Island LNG export facility in Georgia. The vessel arrived nearly full of LNG likely from Trinidad, its prior stop, according to data from Refinitiv. The first liquefaction train at Elba terminal entered service on Oct. 4.

Some traders said the Gemmata could still pick up some LNG from Elba. Officials at Kinder Morgan said the vessel was docked at the facility. Officials at Royal Dutch Shell Plc, which has agreed to buy all the LNG from Elba, would not comment on what Gemmata was doing at the facility.

Pipeline flows to Mexico rose to 5.3 bcfd on Monday from 5.1 bcfd on Sunday, according to Refinitiv data. That compares with an average of 5.5 last week and an all-time daily high of 5.9 bcfd on Sept. 18.

Analysts forecast utilities added 103 billion cubic feet (bcf) of gas to storage during the week ended Oct. 11. That compares with an injection of 82 bcf during the same week last year and a five-year (2014-18) average build of 81 bcf for the period.

If correct, the increase would boost stockpiles to 3.518 trillion cubic feet (tcf), topping the five-year average of 3.505 tcf for the first time since September 2017.

The amount of gas in inventory was as much as 33% below the five-year average in March 2019. But with production close to a record high, analysts said stockpiles should end the summer injection season at near normal levels of around 3.7 tcf on Oct. 31.

Gas production in the Lower 48 states rose to 93.7 bcfd on Monday from 93.5 bcfd on Sunday, according to Refinitiv data. That compares with an average of 93.1 bcfd last week and an all-time daily high of 93.8 bcfd on Sept. 29.