CHICAGO: US natural gas futures jumped more than 4% on Friday to a fresh 32-month high on forecasts that hotter than normal weather will extend through mid-September and concerns Tropical Storm Ida will shut production in the Gulf of Mexico when it hits the Louisiana area as a major hurricane early next week.
Traders also noted that near record gas prices in Europe and Asia continued to boost US gas futures on expectations US liquefied natural gas (LNG) exports will rise to all-time peaks in coming months. That, of course, depends on whether the hurricane shuts Gulf Coast LNG plants for extended periods of time like last year.
Analysts noted storms in the Gulf of Mexico like Ida can reduce gas prices and demand by causing power outages and LNG terminals to shut, but they can also boost prices by knocking Gulf Coast production out of service.
On its last day as the front-month, gas futures for September delivery rose 18.9 cents, or 4.5%, to $4.373 per million British thermal units (mmBtu) at 8:33 a.m. EDT (1233 GMT), putting the contract on track for its highest close since December 2018 for a second day in a row.
The October contract, which will soon be the front-month, was up about 19 cents to $4.40 per mmBtu.
For the week, the front-month was on track to rise almost 14%, its biggest weekly gain since October 2020. Last week, the contract fell less than 1%.
Sharp price increases this week helped push futures at-the-money implied volatility to 47.2%, its highest since February. In February, implied volatility, a determinant of an option's premium, soared to 115.1% during the Texas freeze, its second highest on record.
In the power market, the Electric Reliability Council of Texas (ERCOT), grid operator for most of the state, projected hot weather next week would drive peak demand to a 2021 high of 74,057 megawatts (MW) on Aug. 31. That would top the current year high of 73,463 MW on Aug. 24, but would fall short of the grid's all-time high of 74,820 MW in August 2019.
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