The forward natural gas markets have navigated a challenging journey through the scorching heat waves and relentless humidity that have engulfed the lower 48 states for most of the injection season. While injections have generally met analysts’ expectations, they have fallen short when compared to the previous year’s figures. Despite the market’s relatively calm demeanor during the injection season, there are growing concerns surrounding rig counts. As we approach the conclusion of the injection season, Europe’s storage facilities have largely reached satisfactory levels for the impending winter withdrawal months. The same can be said for domestic storage, which currently stands at 14.3% above storage levels YoY, and 5.9% above the 5 year average, with rig counts steadily declining, there is a looming question of whether the natural gas market will follow the same trajectory as the volatile crude oil market, which has surged by over 12% in the past two weeks. This upward trend in both Brent and WTI prices can be attributed to production cuts implemented by OPEC, particularly the Saudis.
Rig Counts and the Changing Landscape
Domestic rig counts are revealing a significant shift, with a decrease of 127 compared to the same period last year. The combined impact of a diminishing rig count and production cuts orchestrated by OPEC is leaving a profound mark on the oil futures market. As we approach the conclusion of the injection season and transition into withdrawal season, it is essential to closely monitor the developments in the December, January, and February futures markets. Historically, these months have been sensitive to early indications of colder-than-normal temperatures. However, the presence of robust storage levels may act as a stabilizing force, potentially mitigating early season volatility.
As we reflect on the journey of the natural gas market through the summer injection season, it becomes evident that the path ahead is not without its uncertainties. While the market has coped admirably with the challenges posed by extreme weather conditions, the declining rig counts and the influence of OPEC’s production cuts loom large on the horizon. With winter drawing near, the December, January, and February futures will be closely watched for signs of price movements driven by temperature anomalies. The comfort of ample storage levels may offer some respite in a potentially volatile period. As we anticipate the next market update, it will be intriguing to see how these factors continue to shape the evolving landscape of the natural gas market.