Big Rally Monday
A big rally over the weekend and today, with the NYMEX October front month contract growing about 8% from $2.29 USD/mm to $2.63 last.
The winter strip was up 10.5 cents to $3.26 and next summer was up 5 cents to $3.17
Although there is lots of talk about a new tropical storm approaching the Gulf of Mexico (currently named Potential Tropical Cyclone Nine, which is expected to develop into a hurricane and make landfall later this week), this is probably not the reason for the rally. The hurricane is in the eastern Gulf of Mexico is is projected to hit the Florida Panhandle, east of any LNG facilities, and travel through Georgia. Hurricanes tend to have bearish impacts on the natural gas market (shut in LNG export facilities and the storm can divert Natural Gas carriers away from LNG facilities). These impacts are short term and would not affect winter or next summer.
Hurricanes can shut in off-shore production, but off-short production is only 2% of the current US output. The remaining 98% is inland and not affected by hurricanes.
Instead, the rally could be from production cuts as a result of low prices. Reuters reported that average output in September is 102.1 bcf/day, down a bit from 103.2 bcf/d in August. Note that finding production data is difficult and often delayed. Interesting if producers cut output just before winter, since NYMEX futures prices are higher than now, so it will be interesting to follow how long any cuts may last.
The other possibilities are that utilities are just buying to fill storage and some traders got caught short by this. [WFG]