Looking to the Futures
Natural Gas Volatility at Yearly Low
Following a selloff in late July, near-month natural gas futures (/NG) have traded in a tight range for the past two months. Record supply has been sufficient to meet record demand for domestic consumption and liquified natural gas (LNG) exports. Looking beyond injection season, which ends October 31, withdrawal season prices have been trending lower.
The selloff on July 27 followed reports of record output and lower flows to LNG export plants. That provided price relief and pushed front-month prices below $3.00/MMBtu. Since then, the most-active contracts have traded in a relatively tight range of $2.70-$3.00, while the November contract traded in an even narrower range of $2.90-$3.10. The thinkorswim Today’s Options Statistics tool has the Current HV Percentile at 4%, meaning historical (realized) volatility is near its lowest level over the past 52 weeks.
The Energy Information Administration (EIA) in its most recent Weekly Natural Gas Storage Report said natural gas in underground storage increased by 44 billion cubic feet (Bcf) for the week ending September 11, slightly below projections for a 50-Bcf build. Total stocks came in at 3,298 Bcf, 3.6% below the prior year but 3.7% above the five-year average. While the numbers are above average, record heat in August and a hot start to September drove demand from power plants. Over that time, the working gas in storage surplus versus the five-year average narrowed from 198 Bcf to 118 Bcf. Looking at the next two weeks, revised weather forecasts have above-average temperatures covering a smaller area of the Southeast, partially offset with higher temperatures expected across the Midwest.
Further out on the curve, withdrawal season contracts have been trending lower for months. The contract for January delivery (/NGF27), which in most years is the highest-priced month for natural gas, reached its all-time low of $3.702 on Monday. The February (/NGG27) and March (/NGH27) contracts followed the trend to new lows on Tuesday. Part of that can be attributed to healthy current inventories and expectations of high inventories at the end of injection season. The EIA’s Short-Term Energy Outlook forecasts October 31 inventories at 3,969 Bcf, 5% above the five-year average. Winter withdrawal season contracts are running $0.30 to $0.75 lower year-over-year.
On an annual basis, 2026 dry-gas production is expected to average a record 111.7 Bcf/d, up 4.06 Bcf/d, while consumption and exports are expected to increase by a combined 2.63 Bcf/d. The story for 2027 is more of the same, with expected production increasing by a further 4.2 Bcf/d and consumption and exports forecasted to increase by a combined 3.27 Bcf/d. Price forecasts were lowered from the August release, with 2026 prices expected to average $3.43/MMBtu, down a penny, and 2027 prices set to average $3.28, down three cents from the August report. Part of the looser supply can be attributed to increased crude oil production and an ongoing increase in the ratio of natural gas to oil production in the Permian region in western Texas and southeastern New Mexico.
Technicals
Natural gas futures for November delivery (/NGX26) rallied over the past two days, up 21 cents from Monday’s settlement. Yesterday’s move took the contract through the 9-, 20- and 50-day simple moving averages. That made it the seventh straight day of the contract trading through those three SMAs, confirming the consolidation the market has seen. Zooming out, the six-month daily chart shows a selloff over the first half of April and consolidation through the end of June. The story of the past two months is more consolidation, with the RSI spending most of that time between 40 and 50. Interestingly, the MACD has spent most of the past six weeks in a bullish setup.
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