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Why winter weather hasn’t fueled a big rally in natural gas

Arctic weather in much of the U.S. in November lifted prices for natural gas to their highest level since March, but ample U.S. supplies of the heating fuel have put the commodity on track for a loss for the month.

Natural-gas prices haven’t posted a decline in November since 2015 as the month traditionally marks the start of the winter heating season. In the same month last year, prices registered a month-to-month climb of 41%.

“Winter came quickly to the U.S., as temperatures plummeted earlier this month, causing [natural] gas prices to jump 20% from late October to early November, and nearly 25% since the lows during the summer,” says Gregory Leo, chief investment officer at IDB Bank.

Futures prices for natural gas NGZ19, -0.30% settled at $2.862 per million British thermal units on Nov. 5, the highest since March. At $2.567 on Thursday, however, prices traded almost 3% lower for the month, and down nearly 13% this year so far, according to Dow Jones Market Data.

Time
Natural Gas Dec 2019
Mar 19
May 19
Jul 19
Sep 19
Nov 19
US:NGZ19$3.00$2.25$2.50$2.75$3.25
“Despite the cold start to winter, the natural-gas market can withstand whatever Mother Nature can throw at it, it seems,” says Matt Smith, director of commodity research at energy data, analysis, and commentary provider ClipperData. “Prices have gravitated back to the mid-$2 range as colder weather forecasts have moderated and storage is now at a surplus” versus last year.

In October, the National Oceanic and Atmospheric Administration said that warmer-than-average temperatures are forecast for much of the U.S. this winter, but it also said that the northern Plains, upper Mississippi Valley, and the western Great Lakes have “equal chances for below-, near- or above-average temperatures” for December through February.

Meanwhile, the Energy Information Administration reported the first natural-gas supply decline for the 2019-20 winter weather season, with supply down 94 billion cubic feet, to 3.638 trillion cubic feet, for the week ended on Nov. 15. Stocks were up 506 Bcf from a year ago but stood 60 Bcf below the five-year average.

The U.S. has an “abundance of natural gas thanks to the fracking explosion,” says Stan Bharti, chief executive officer of private merchant bank Forbes & Manhattan, which invests in the energy sector. “All signs point to an increase in inventories,” which explains why natural gas prices are down this year.

Smith says that as long as storage levels remain close to the benchmarks of last year and the five-year average, prices will remain in the mid-$2 range. At those levels, prices would be at their lowest for this time of year since 2015. “I’d say natural gas is cheap,” in part because the U.S. continues to grow its exports, since prices for the commodity are “substantially more expensive” in Asia, says Simon Lack, managing partner at SL Advisors.

China is seeking to double the percentage of its electricity derived from natural gas by 2030, from 7.5% currently to 15%, so “there’s continuing strong demand growth.”

“Natural gas could easily be $1 higher, without eliminating the cost advantage driving exports,” he adds.

Not everyone is betting on warmer-than-usual winter weather. Steven DiMartino, lead meteorologist at private forecasting firm Weather Concierge, said that November is often a “bellwether of what to expect” and cold Novembers typically set up the season for the Northeast and Great Lakes.

Demand for natural gas “will spike as everyone turns on the heat, with this cold air on the way,” he says.
Source: MarketWatch

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