It was rising with such intensity that it looked like it was going to pierce the $7 per mmBtu territory next. But suddenly, over the past week, the pace of the natural gas rally has slowed.
At the time of writing (1:00 AM Eastern US Thursday), the front-month gas contract on the New York Mercantile Exchange’s Henry Hub was still up 1.8% on the week.
But the momentum that took it to mid-$6 levels as October began seems to have vanished. For example, during the week ended Sept. 24, Henry Hub’s spot contract jumped 9.3%.
Gas prices are still up 124% on the year. But what we have now is a choppier market, with smaller intraday moves within the $5.40-$5.70 range, as benign weather, larger weekly injections into US storage, and global gas diplomacy waged by Russian leader Vladimir Putin form an antidote to the earlier rally.
Analysts at energy market consultancies say that at the core, the market was having trouble meeting the ratcheted up expectations of gas bulls week after week.
“Moderate temperatures during the week of storage are anticipated to result in lower weather-driven demand throughout the nation,” said Dan Myers of Houston-based Gelber & Associates.
Source: Gelber & Associates
Myers’ consultancy is predicting that the US Energy Information Administration will report that utilities in the country injected a bigger-than-normal 98 bcf, or billion cubic feet, into storage last week in the EIA’s weekly inventory update due at 11:00 AM ET today.
Gelber’s prediction is on the higher side of polling for the EIA data meant for the week ending Oct. 8, with the average estimate tracked by Investing.com coming in at 94 bcf.
Even at this level, the build would be nearly double versus the 50 bcf hike seen during the same week a year ago and the five-year (2016-2020) average increase of 79 bcf.
In the prior week to Oct. 1, utilities injected 118 bcf of gas into storage, which was the fourth week in a row that utilities stockpiled more gas than usual.
If analysts are on target with the 94 bcf estimate, the injection during the week ended Oct. 8 would take inventories to 3.382 tcf, or trillion cubic feet—some 4.5% below the five-year average and 12.6% below the same week a year ago.
Myers said lower heating demand was expected to continue over the next two weeks and further elevate injections during the calendar month of October. These could—for now at least—keep 2021 storage injections well above not only 2020 levels, but also the five-year average.
He added:
“Total weather-driven demand is actually expected to sum to almost the same values as that of last week. However, this week is expected to fall 20 bcf below last week’s impressive 118 injection as a result of lower wind generation, and hence higher natural gas demand over the week of Oct. 8. Total non-weather-driven demand—specifically Mexican and LNG exports—has slightly fallen by around 2 bcf, not enough to offset lower wind generation.”
Source: Gelber & Associates
But over and above US market conditions for both dry gas and LNG, domestic prices were following global—or rather European—pricing, which has come off their highs for October.
Benchmark European gas prices are up more than 350% this year, trading above $31 per mmBtu on Wednesday, although down from last week's spike above $52. The retreat came after Putin offered this week to ramp up Russia’s gas exports to help ease Europe's energy crunch as the EU called an emergency summit to tackle skyrocketing prices.
Europe's gas squeeze has shone a spotlight on Russia, which accounts for a third of the region's supplies, prompting European politicians to blame Moscow for not pumping enough. Putin told an energy conference in Moscow that the gas market was not balanced or predictable, particularly in Europe, but said Russia was meeting its contractual obligations to supply clients and was ready to boost supplies if asked.
Russia and Europe have been embroiled in a dispute over a new pipeline, Nord Stream 2, to supply Russian gas to Germany. The pipeline is built but awaits approval to start pumping, amid opposition from the United States and some European nations that fear it will make Europe even more reliant on Russia.
Some European politicians say Moscow is using the fuel crisis as leverage, and Putin has dismissed accusations that the Kremlin was weaponizing Russia’s gas exports. "This is just politically motivated chatter, which has no basis whatsoever,” he said.
The European Union has not asked Russia to increase supplies of gas to the bloc, a European Commission official told Reuters. The European Commission instead outlined measures on Wednesday that the 27-nation EU would take to combat the energy crisis, including exploring a voluntary option for countries to jointly buy gas. Ministers from EU countries will hold an extraordinary meeting on Oct. 26 to discuss the price spike.
These measures have taken some heat off European gas prices, ostensibly adding to US market volatility.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.