Natural gas holds bullish structure despite renewed selling pressure

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Gas holds firm despite pressure

Pipeline recovery removes a key short-term catalyst

The main change compared with the end of last week has come from the infrastructure backdrop. The sharp price spike was supported by a force majeure on Columbia Gas Transmission in West Virginia, which restricted around 1.8 Bcf/d of transportation capacity. However, this restriction was lifted from September 27, and full capacity restoration was announced for September 28.

As a result, one of the strongest short-term bullish factors has disappeared. Separate restrictions remain in Appalachia, in particular on the Stonewall Gas Gathering system, but their scale is already noticeably smaller and so far does not create the same effect on the nationwide balance.

Storage remains comfortable ahead of winter

Inventories also do not give the market grounds to talk about a shortage. In the week ending September 18, the volume of gas in U.S. storage increased by 53 Bcf, from 3.298 to 3.351 Tcf. This is around 95 Bcf, or 2.9%, above the five-year average, although 146 Bcf below the level seen a year earlier.

More importantly, a further build-up of a comfortable buffer is expected by the end of the injection season: the forecast for October 31 stands at around 3.969 Tcf, roughly 5% above the average level of the previous five years. High production, primarily in the Permian and Haynesville, continues to limit the risk of a physical shortage ahead of winter.

LNG demand and weather keep the upside case alive

The balance, however, cannot be called unambiguously bearish. LNG demand remains very high: U.S. export infrastructure continues to operate close to maximum utilization, while expanding capacity is gradually increasing the volume of gas leaving the domestic market. An additional premium remains because of the situation in the Middle East. Disruptions to supplies through the Strait of Hormuz and damage to part of Qatar's export capacity are increasing the value of alternative LNG from the U.S., so a new escalation in the region could quickly bring buyers back into U.S. natural gas.

At the same time, weather models for early October have started to show colder scenarios, but they still differ noticeably in terms of the timing and intensity of the cooling. Therefore, the near-term dynamics of Natural gas effectively come down to a confrontation between two factors: comfortable inventories and infrastructure restoration on the one hand, and rising LNG demand and the risk of an early cold spell on the other.

Although NATGAS prices continue to face selling pressure at the moment, it is still premature to talk about a reversal of the uptrend. A decline toward $3.10-3.00, as I warned in Natural gas holds above $3.20 after sharp breakout, can still be used for buying and for another attempt by the bulls to attack $3.30-3.40, and only a break below support around $3.00-2.95 could significantly weaken the bullish momentum. Even in that case, however, a substantial decline in natural gas prices still looks unlikely.

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