Extreme Cold Weather Forecast Puts Natural Gas ETFs In Focus

Natural gas futures for November rose by nearly 2.6% to $3.242 per million British thermal units (mBtu) on Oct 15 due to forecast of below-average temperatures in the coming 11-15 days. The south and Midwest regions are expected to be most affected.

Per the U.S. Energy Information Administration (EIA) weekly inventory release, natural gas storage injections were in line with expectations but inventories remain significantly below their five-year moving average just before the onset of winter. Working natural gas inventories are expected to enter the winter heating season at 3,263 billion cubic feet per day (Bcf/d), the least since 2005.

Fundamentally, total supply of natural gas averaged around 91.1 Bcf/d, essentially unchanged for the week ended Oct 5. Meanwhile, daily consumption was up 0.9% to 78.2 Bcf on stronger power generation demand. The production of dry natural gas remained constant week over week.

U.S. consumption of natural gas tends to be in the range of 30-35% for winter, higher than in the spring and fall months, when temperatures are on the milder side.  

“With natural gas storage levels so low, prices are sensitive to cold this early in the season,” said Jacob Meisel, TalkMarkets contributor and Bespoke Weather Services chief weather analyst and added that prices could shoot up $4 this winter.

“Natural gas supplies are 17 percent below last year and the five-year average levels. Put in real numbers, that’s 600 Bcf below. It means we’re starting off the winter with a big hole in our supply,” said John Kilduff of Again Capital.

Per NetgasWeather, the coming weather pattern would increase inventory deficits versus the five-year average to more than 650 Bcf, and more likely toward 700 Bcf.

However, fundamentals of the industry remain on the stronger side with the preference for cleaner burning fuel globally. EIA expects global demand for the commodity to grow by 43% from 2015-2040.

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