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Natural Gas: Colder Weather On The Horizon While Cash Remains Weak

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Includes: BOIL, DGAZ, KOLD, UNG, UNL
by: HFIR Energy
Summary

The weather outlook towards the end of October has improved.

But shut-in production returning to the market and delays in LNG exports are keeping cash weak.

Early November cold won't do wonders for the storage surplus, but it will help prop up the physical market, which could reduce the drag it's been having on futures.

With all said and done, we still find the November contract expiration very unappealing to trade around. We are still waiting for EQT to correct down to $14.4 level before we start to initiate a position.

So to summarize, near-term fundamentals are starting to improve a bit with colder weather. Cash remains weak and delayed LNG exports will keep pressuring the physical market. Longer term, the fall in Lower 48 production will be very bullish, and we want to get positioned in the right natural gas producers to take advantage.

Welcome to the offset edition of Natural Gas Daily!

The outlook for the end of October has markedly improved over this week.

Source: HFIRweather.com weather data

We've been gaining heating degree days pretty much nonstop in every 24-hour cycle update from ECMWF-EPS. And the 10-15 day outlook has improved to this:

Source: HFIRweather.com weather data

Early November cold will not actually impact storage all that much unless of course, it's a really cold blast, which could turn into a large storage draw. But the early cold in November does help alleviate some of the issues the physical gas market is having, and this could help push cash prices up into the month-end.

Now for those of you wondering why prices are selling off today, the news out is that Cameron LNG exports will be delayed. Originally, LNG exports were projected to go above ~9 Bcf/d this weekend but look like this will have to wait a bit now.

This, however, doesn't stop the fact that LNG exports will be above ~9 Bcf/d soon, and once it does combine with early heating demand, we could see Henry Hub cash prices get out of the current slump it's in.

One thing that was a tailwind and now turned into a headwind is the return of all the shut-in natural gas production.

We went from ~84 Bcf/d back to ~88 Bcf/d. We think some of the excesses in the rebound are the result of wells that were shut-in having pressure built up resulting in the initial jump. We think production should fall back to the ~86.8 Bcf/d level in the next week or so.

With all said and done, we still find the November contract expiration very unappealing to trade around. We are still waiting for EQT to correct down to $14.4 level before we start to initiate a position.

So to summarize, near-term fundamentals are starting to improve a bit with colder weather. Cash remains weak and delayed LNG exports will keep pressuring the physical market. Longer term, the fall in Lower 48 production will be very bullish, and we want to get positioned in the right natural gas producers to take advantage.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EQT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.