Natural gas continues its strong decline after the recent seasonal rally in early autumn. The price is down 5% today, which is related to the weather, but also to the upcoming rollover that will take place on November 18th. The next rollover will be around $ 0.1-0.2 higher per contract.
The current year is full of anomalies and the weather is one of them. Usually, it is November that brings the greatest temperature differences compared to the average, which causes significant price increases. Nevertheless, it is worth remembering that November accounts for less than 20% of the entire heating season in the United States, so it is possible that the gas rally will appear this season, in particular that the supply in the fourth quarter (so far) according to EIA data is lower by 9 billion cubic feet per day compared to last year. Theoretically, this looks like a positive factor, but it is worth looking at the details. The lower daily supply is the result of a slight decrease in production (a small number of drilling rigs) and a significant decrease in gas imports (mainly from Canada), which is simply related to lower than usual demand. This year, the increase in gas inventories was one of the largest in history, so even information regarding significant drops in temperatures may not be enough to initiate long-lasting price rallies.
Temperatures in the US in the coming days are getting higher than average, which means less demand for gas. Source: The Weather Channel, Twitter
Gas inventories this year are near their record levels, despite lower supply. This is the effect of lower US demand as well as lower exports. Source: EIA
The price of natural gas is strongly declining and the seasonality indicates that the declines should persist at least until mid-December. Interestingly, gas is still quite heavily overbought by speculators, much more compared to the same period last year. Source: xStation5
