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Natural Gas Rallies on Smaller-Than-Expected Weekly Supply Build, Cold Winter Forecast

October 15, 2020 at 17:41 by Andrew Moran

Natural gas futures are advancing toward the end of the trading week after the US government reported a smaller-than-expected jump in domestic inventories. Despite a Wednesday selloff, natural gas prices are recovering as investors brace for a colder-than-average winter. Could the energy commodity test $3 by year’s end?

November natural gas futures surged $0.155, or 5.88%, to $2.791 per million British thermal units (btu) at 17:29 GMT on Thursday on the New York Mercantile Exchange. Natural gas had been trading at its best level in about 18 months before paring its spike. Natural gas prices are on track for a weekly gain of about 6%, lifting their year-to-date increase to around 28%.

According to the US Energy Information Administration (EIA), domestic stockpiles of natural gas advanced by 46 billion cubic feet for the week ending October 9. The market had penciled in an increase of 60 billion cubic feet. In total, US inventories stand at 3.877 trillion cubic feet, up 388 billion cubic feet from the same time a year ago. They are also 353 billion cubic feet above the five-year average.

In addition to the storage data, many other factors are contributing to natural gas’ rally over the last week. The main driver is that investors are preparing for cold temperatures from the La Nina climate pattern, which is bullish for natural gas prices since it would boost power generation demand so households can heat their homes.

Commodity Weather Group analysts said in a research note that the latest forecasts point to a cold-weather trend over the next several weeks.

The cool shot late this week and through most of the 6–10 day [forecast] comes in stronger than expectations from last week.

The same weather trends formed last week, with frigid temperatures taking place in October and November, and eventually warming up by the end of December.

Meanwhile, investors are surveying the damage in the aftermath of Hurricane Delta. Last week, the Category 2 storm landed in Louisiana that prompted oil and gas companies to shut in crude and natural gas production. This affected about one-fifth of the nation’s output.

According to the US Commodity Futures Trading Commission (CFTC), hedge funds and money managers increased their bullish natural gas bets to an 18-month high and reduced their bearish positions.

In other energy commodities, December West Texas Intermediate (WTI) crude oil futures dipped $0.17, or 0.41%, to $40.87 per barrel. December Brent crude futures slipped $0.21, or 0.46%, to $43.12 a barrel. November gasoline futures dropped $0.0133, or 1.11%, to $1.1838 per gallon. November heating oil futures shed $0.006, or 0.5%, to $1.1865 per gallon.

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