The natural gas market has been on quite a bullish run over the last couple of weeks, with price action today taking the November contract up over the $3.00 level, the highest price we have seen a prompt month contract in 2020.
Why the sudden strength after so many months in the doldrums? The main reason is a climb in LNG volumes, returning to levels much higher than what we saw over the summer when high global storage held exports down.
With more natural gas now set to leave the U.S, that tightens up the supply/demand balance enough so that we appear to be safely avoiding any storage constraints.
Helping the bullish narrative has been the weather pattern, which is turning out colder here in the month of October up north, while there has still been some notable heat in the South and Southwest.
Month-to-date temperature anomalies:
The upcoming 15 days continue to look cold, especially in the central U.S, elevating GWDDs.
We now project that the month of October will finish with more than 350 total GWDDs, not as high as the last two years, but still rather impressive.
***Important Note: We cannot stress how significant the weather will be as we head into this winter season. With LNG volumes back higher, and production still sitting roughly 7 bcf lower on a year-over-year basis, there is significant upside price risk in the event of a cold winter. On the flip side, another big warm winter can outweigh the bullish fundamental backdrop, leading to forward price declines.
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