Natural gas surges as traders prepare for cold winter

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Natural gas prices hit their highest level in over a year and a half on Monday, extending a recent rally with traders preparing for colder temperatures and assessing the impact of weather-related supply disruptions .

Natural gas futures for November delivery rose 5.1% to $ 2.881 per million U.K. thermal units, posting their highest close since March 2019. Prices rose around 14% through ‘now this month and have increased by about 60% in the past three months. gains to come before the winter heating season.

The demand for electricity generation generally increases during the colder months as more and more people use natural gas to heat their homes. At the same time, investors were assessing the damage from Hurricane Delta, which made landfall on Friday as a Category 2 storm on the Louisiana coast and forced energy companies to shut down some natural gas production. Before the storm.

Combination of lower supply and growing consumption is fueling bullish sentiment in a notoriously volatile market, especially as the latest forecast points to colder weather across much of the United States over the coming weeks. .

“The cool hit on weekends and most of the 6-10 day [forecast] comes stronger than expectations from last week, ”analysts at Commodity Weather Group said in a note.

Hedge funds and other speculative investors have stepped up bullish bets on natural gas and reduced bearish bets in recent weeks, pushing net bullish bets around their highest level in a year and a half, according to data from Commodity Futures Trading Commission.

Traders have been eagerly awaiting the latest US inventory data expected for Thursday. For much of the past two years, stubbornly high inventories signaled a plentiful supply and halted any rebound in natural gas prices.

The latest Energy Information Administration data for the week ended Oct. 2 showed inventories were 13% above their levels a year earlier and 11.5% above the five-year average levels for this. period of the year.

However, analysts believe that disruption from Hurricane Delta and cold temperatures could lead to lower-than-normal additions to stocks over the coming weeks, which could create a bullish winter period that normally sees stocks plummet.

Still, some traders remain cautious about the long-term outlook for natural gas, as the global economy recovers from the coronavirus pandemic and demand remains stagnant in parts of the world. Prices often rose during cold periods, only to drop soon after, as demand declines and producers increase production to take advantage of higher prices. Supply difficulties and storm-related price increases are also often short-lived.

Elsewhere in commodities on Monday, U.S. crude oil prices slipped 2.9% to $ 39.43 per barrel, continuing a month-long period of trading around $ 40 as the coronavirus limited demand fuel. Traders were weighing the prospect of a higher supply after production restarted at Libya’s largest oil field over the weekend and the end of a workers’ strike that had impacted production in Norway.

Write to Amrith Ramkumar à [email protected]

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