U.S. natgas jumps near 12% on cooler forecasts, short covering

“Today’s upward move is likely the beginning of tremendous volatility into November final settlement on Wednesday,” said Eli Rubin, senior energy analyst at EBW Analytics Group, noting the combination of the colder forecasts and rising LNG exports triggered “short-covering that amplified the move higher.”

This month has already seen record volatility with futures soaring to their highest close since 2008 on Oct. 6 before collapsing 25% by the middle of last week. read more

But no matter how high U.S. futures have climbed, global gas was still trading about six times over U.S. prices, keeping demand for U.S. LNG exports strong as utilities around the world scramble to refill stockpiles ahead of the winter heating season and meet current energy shortfalls causing power blackouts in China.

Front-month gas futures for November delivery rose 61.8 cents, or 11.7%, to settle at $5.898 per million British thermal units (mmBtu). That was their biggest daily percentage increase since September 2020 and was the contract’s highest close since Oct. 5 when it settled at its highest since December 2008.

In addition to the November contract, which expires on Wednesday, prices for the rest of the winter futures (December-March) also gained over 10% on Monday.

Over the past three weeks, speculators have cut their net long positions on the New York Mercantile and Intercontinental Exchanges to their lowest since July 2020 on growing expectations the United States will have more than enough gas in storage for the winter, according to data from the Commodity Futures Trading Commission (CFTC).

Analysts at Societe Generale said U.S. gas saw a “$1.3 billion bearish flow, mostly on short covering.” A bearish flow is when investors liquidate longs and add to shorts or when long liquidations are greater than short covering.

Analysts expect U.S. gas inventories will reach 3.6 trillion cubic feet (tcf) by the start of the winter heating season in November, which they said would be a comfortable level even though it falls short of the 3.7 tcf five-year average.

U.S. stockpiles were currently about 4% below the five-year (2016-2020) average for this time of year. In Europe, analysts say stockpiles were about 15% below normal.

Data provider Refinitiv said output in the U.S. Lower 48 states has risen to an average of 92.2 billion cubic feet per day (bcfd) so far in October, up from 91.1 bcfd in September. That compares with a monthly record of 95.4 bcfd in November 2019.

Refinitiv projected average U.S. gas demand, including exports, would rise from 89.4 bcfd this week to 91.6 bcfd next week as more homes and businesses turn on their heaters. Those forecasts were higher than Refinitiv projected on Friday.

Refinitiv said the amount of gas flowing to U.S. LNG export plants has averaged 10.4 bcfd so far in October, the same as in September, but was expected to rise in coming weeks as some liquefaction trains exit maintenance outages.

With gas prices near $31 per mmBtu in Europe and $33 in Asia , versus almost $6 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States could produce.

But no matter how high global gas prices rise, the United States has the capacity to turn only about 10.5 bcfd of gas into LNG.