Natural gas market fundamentals appear to have eased (particularly retreating demand), which has led to relatively softer prices over the past week. Market demand, including Mexican exports, has dropped to 50 Bcf per day (and lower) on certain days in September, as moderating temperatures have resulted in reduced gas loads to power generation while dry gas production for the month of September remains strong at 62 Bcf per day, 7.0 percent above last year.
The positive supply balance is being directed into storage, and has averaged 13.6 Bcf per day in September of net injections, 17.4 percent above last year’s level. So, how has the market responded? October futures are trading at about $3.80 per MMBtu, only slightly above the lowest prices of the year, and the spread between current prices and March 2012 futures is approximately $0.50. This implies a relatively optimistic market sentiment about the supply-demand balance this winter.
Major supply disruptions notwithstanding, if working gas injection volumes continue to remain on pace, we are likely to see storage volumes on par with the five-year-average heading into the winter, which is a firm indicator of adequate supply to meet coming winter heating season loads.
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