As we enter the final week of October, two days before the November contract settles, it is important to recognize that market liquidity has shifted away from the NYMEX November (front-month) contract to the January and February contracts. The reduced active interest in November is making the front-month contract more volatile. This point was clearly illustrated today as the November contract rallied $0.14 USD/MMBtu or 4% to settle at $3.43 USD/MMBtu, whereas the December to March contracts all remained largely flat.

The rise in November pricing can, in part, be attributed to cooler forecasts. Weather models indicate the start of November will be at normal temperature (down from slightly above normal). LNG export flows for October have now reached record highs of 16.6 bcf/d, above the previous monthly high of 16.0 bcf/d in April. US production has ramped back up over the last week, now averaging 108 bcf/d. Flows in the first week of October were as low as 104 bcf/d. Strong LNG flows and increased weather demand support the bulls, but the high production and storage surplus keep fundamentals bearish in the near term. (PB)