Natural-gas futures rallied on Monday to mark their highest settlement in almost three weeks, with forecasts for colder weather lifting prices for the heating fuel by nearly 12% for the session.
Oil futures, meanwhile, finished on a mixed note, with U.S. prices flat and global prices up for the session, as investors focused on tight supply and comments from oil producers in Saudi Arabia and Russia.
November natural gas
which expires at the end of Wednesday’s trading session, climbed 62 cents, or 11.7%, to settle at $5.898 per million British thermal units. That was the highest finish for a front-month contract since Oct. 5, according to Dow Jones Market Data.
After nearly an entire month of above-normal temperatures, the National Oceanic and Atmospheric Administration predicts colder-than-normal conditions for most of the Southeast and Midwest during the first week of November, which will “likely boost domestic heating demand over the period,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note.
Last week, NOAA also released its 2021-22 Winter Outlook, predicting a La Niña event for a second year in a row.
“This is expected to bring above-normal temperatures for the southern and eastern US, but below-normal temperatures for the Pacific Northwest, which should net out to a warmer-than-normal winter overall,” said Redmond. “The forecast also predicts a continuation of severe drought conditions for the western U.S., which may cause the region to continue to rely more heavily on [natural] gas-fired power generation, as hydroelectric availability remains challenged.”
Also on Nymex Monday, U.S. and global benchmark crude futures split paths, with U.S. prices trading higher for much of the session, then moving lower — only to finish flat.
“Such volatility is to be expected with crude testing key technical resistance levels and multiyear highs,” Troy Vincent, market analyst at DTN, told MarketWatch.
Stories around the potential for the Cushing, Okla., the delivery hub for Nymex oil futures to “run storage down to tank bottoms helped the WTI prompt spread (1-2 month) move to extreme backwardation, he said. “But this also led crude differentials to move to a point that likely prevents that scenario from developing, as WTI moved to levels that will begin to slow the pull of Cushing inventories to the Gulf Coast, slow U.S. crude exports and lead to higher U.S. crude imports.”
West Texas Intermediate crude for December delivery
settled unchanged at $83.76 a barrel on the New York Mercantile Exchange after touching a high of $85.41. Based on the front-month contracts, prices touched their highest intraday level since October 2014. WTI has seen nine consecutive weekly gains, based on front-month contracts — the longest streak ever for front-month contracts, according to data going back to 1983 compiled by Dow Jones Market Data.
the most actively traded contract, climbed 53 cents, or 0.6%, at $85.17 a barrel.
Traders have been “pricing in the ongoing rise in fuel demand — which amid limited supply response is depleting global stockpiles,” said Louise Dickson, senior oil markets analyst at Rystad Energy, in a Monday note. “The relative calamity of COVID-19 and return to normalized mobility amid an energy crunch are bullish factors that have amplified to the extreme.”
She said that the “upside risk to crude is real and a brief spike to $100 is not out of the question,” in the short term, as oil “becomes a viable substitute for heating and power, particularly in Asia.”
WTI prices briefly turned lower on Monday as traders weighed comments Alexander Novak, Russia’s deputy prime minister.
Novak told Reuters that the Organization of the Petroleum Exporting Countries and their allies will raise agree to production by 400,000 barrels a day at their meeting on Nov. 4. The move would be in line with a previous agreement set by the group of producers, which is known as OPEC+.
For now, spreads continued to tell the tale of tightening U.S. supplies. WTI’s discount to Brent has narrowed from around $4 a barrel earlier this month to around $1.50, noted Warren Patterson, head of commodities strategy at ING, in a note.
Meanwhile, oil inventories at Cushing continue to decline and stand near 30 million barrels, he said. Analysts have noted the sharp backwardation — when nearby contracts trade at a premium to deferred contracts — in WTI futures.
Patterson noted the “prompt” WTI spread — December futures versus January
— stands at more than $1.40, the strongest since 2018 when Cushing inventories fell to less than 22 million barrels. A continuation of the trend would likely start to begin weighing on U.S. crude exports, he said.
Remarks over the weekend by Saudi Arabia’s energy minister were taken as a sign that OPEC+ has little appetite for further boosting output. The remarks by Prince Abdulaziz bin Salman underlined concerns the COVID-19 impact could still undercut demand in the near term.
“We are not yet out of the woods,” he told Bloomberg Television on Saturday. “We need to be careful. The crisis is contained but is not necessarily over.”