Cold Forecasts Raise Natural Gas Prices to $4.6
Quick overview
- Natural gas prices have risen to $4.6275/MMBtu due to forecasts of a colder December.
- Concerns remain about the upcoming EIA storage report, which is expected to show higher inventory levels than average.
- Despite high production levels, increased heating demand may help reduce the surplus of natural gas.
- Investors are closely monitoring the EIA report to see if it will support the current price uptrend.
Natural gas is up today, hitting a high of $4.6275/MMBtu after weather forecasts indicated that a colder December was on the way, and weather is proving to be the driving force in gas prices for now.
The weather forecast is driving gas prices slightly higher, but there are concerns about Thursday’s EIA storage report and what it could mean for natural gas values. Throughout much of the year, there has been an overabundance of natural gas in storage with little demand from the warm weather.
The EIA report is expected to show 11-17 Bcf for the previous week, which would be well above the average from the past five years of +12 Bcf. Inventory is pending lower by about 0.3% compared to the same time last year, however, natural gas inventory is up 4.5% from the five-year average.
The Supply Problem Meets Winter Demand
For months, natural gas investors have been worried about diminishing demand and rising storage numbers. With plenty of gas in reserves, prices would be likely to stay low as long as demand was not dramatically increasing. The storage issue has plagued the industry throughout most of the year, but now with a winter that is expected to be colder than usual, some of that extra supply may get used up.
The heating demand for the United States is expected to increase throughout the rest of November and through December. That could give the natural gas market the boost it has needed much of the year as investment opportunities stagnated.
The weather forecast for December moved slightly colder on Wednesday, prompting Thursday’s natural gas price increase. Production is still high for natural gas rigs, adding to the surplus storage problem. The reading taken Wednesday showed that production was up about 7.5% from the previous year with output at 109.4 Bcf/d.
Now, investors are waiting to see if the latest EIA reading gives the uptrend a boost or slows it down. This is historically a season when natural gas prices increase, but the nagging storage problem could hinder how quickly the prices escalate.
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