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Will an Early Winter Boost Natural Gas Prices?

U.S. consumer spending rose 1% in August while incomes fell 2.7%, making it harder for economic recovery. Meanwhile, U.S. stocks end higher despite the lack of stimulus progress and the Nasdaq up 1.4%. Within the last month, the NYMEX spot market for October’s delivery contract lost more than a third of its value. After peaking at $2.743, the market bottomed out at $1.795 only to rise again to $2.207.

Natural gas ended slightly lower at $2.487/MMBtu and investors worry consumption may not grow fast enough to offset slow demand during the pandemic. An early winter could increase usage of gas-fired heating which would boost prices, but even if households burn more fuel to keep warm the high storage number continues to keep prices low. If temperatures are above normal as forecasted this could mean larger storage injections because of lower NG demand. Natural gas storage inventories grew by 76 Bcf in the week ending September 25, which is far less than the 109 Bcf injection seen this time last year. Also, oil prices remain low and seem stable at around $39.70.

Natural gas pricing plays a key role in electricity power pricing due to the increasing reliance on natural gas fired generators as nuclear, coal, and oil generation is retired and mothballed. As the marginal unit of generation, gas prices are directly correlated to power pricing (more so in some regions such as NYC vs. others such as parts of PJM). We keep an eye on natural gas market fundamentals in order to provide insights into forward power pricing for our clients. Gas production has grown and surpassed any speculation that production would not be able to keep up with demand due to LNG and Mexican exports.

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