NYMEX October natural gas futures settled 9.5 cents higher at $3.911/MMBtu Wednesday, with analysts pointing to a technical rally spurred on by the possibility of another harsh winter.
The prompt month was trading mostly flat through the morning on low volumes until the noon update of a popular weather model came out, calling for freezing temperatures in the Midwest, as far south as Arkansas, and even into the East by the second week of October.
"A lot of this is winter fears. The GFS [weather] model is predicting a massive cold snap now by the 9th of October," said Aaron Calder, senior market analyst at Gelber & Associates. "It's basically predicting that the first or second week of October will be a shock to the system. That was enough to boost the market on a low-volume day."
Calder noted that he finds the risk "extremely overblown," and still expects mostly mild weather into October and continued strong injections to storage.
Analysts polled by Platts on Wednesday expect the US Energy Information Administration on Thursday to report an injection in the 92-96 Bcf range -- well above the 79 Bcf five-year average.
"It's crazy how the contract continues to move on the GFS; it's too different from" every other weather model, Calder said.
"The bears are running out of time," said independent analyst Stephen Schork of The Schork Report. "We're building steam for a big move; historical volatility has spiked over the last couple of weeks and we're loading up the cylinder here. There may be an early stab at heating demand coming up."
"Now's not the time to be complacent," said independent analyst Jay Levine at Enerjay. "It's easy to get lulled into this false sense of security" that we will stay in this range of roughly $3.75-$4/MMBtu, because the market could eclipse both of those due to the unknowns ahead, he added.
"My feeling is lot of technical people are starting to come out of the woodwork," said Phil Flynn, senior market analyst at Price Futures Group. "Winter is coming, and there's a huge speculative short position that will be difficult for the market to push down because there aren't a lot of sellers. We're also getting towards the end of the refill season, and people are talking about the possibility of price spikes if we get another cold winter."
Flynn also mentioned the possibility of some spillover from the NYMEX oil market, where the crude prompt month settled $1.24/barrel higher on Wednesday.
The October gas contract traded Wednesday in a range of $3.796-$3.916/MMBtu.
The NYMEX settlement is considered preliminary and subject to change until a final settlement price is posted at 7 pm EDT (2300 GMT).
