Every day cash-price volatility close to multiyear excessive in Dec
Every day contract quantity surges to common 444 in Oct
Manufacturing supply-risk compounded by deliverability
New York —
Elevated value volatility and commerce quantity on the US benchmark Henry Hub this autumn will seemingly proceed into 2021 as home manufacturing weak spot retains the market off stability.
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In December, day by day modifications within the Henry Hub settlement value – calculated in absolute worth – are elevated in comparison with current historical past. Whereas no less than a few of that volatility might be attributed to a single-day 60-cent surge in money costs at the beginning of this month, large fluctuations in heating demand and decrease manufacturing ranges have exacerbated day by day value swings just lately.
For a cash-market index that has seen minimal volatility lately, the development throughout this fourth quarter has been notable.
In September and October, when the uptick in market volatility started, day by day modifications within the Henry Hub money settlement averaged 12 cents and 13 cents/MMBtu, respectively. Within the 17 months previous to that, although, day by day value modifications at Henry Hub ranged from a month-to-month common low of two.3 cents to a excessive of simply 6.1 cents.
Whereas value volatility has moderated a bit this month, it nonetheless ranks among the many highest recorded ranges since January 2018, when excessive chilly climate and robust heating demand moved the Henry Hub day by day value index a mean of 41 cents every day.
Quantity, provide, demand
The current enhance in Henry Hub day by day value volatility has correlated with an uptick in buying and selling quantity as effectively.
In October, day by day contract quantity averaged over 400 with as many as 810 contracts altering arms throughout a single day that month, S&P International Platts knowledge exhibits. The uptick in contract quantity seemingly comes as merchants, agnostic to cost, look to revenue on the volatility, and as producers and end-users maneuver round current value positions and hedges.
The concurrent surge in each volatility and quantity has accompanied massive day by day fluctuations in each provide and demand since late August.
Nicely into autumn, a flurry of hurricanes and tropical storms within the Gulf of Mexico took a big quantity of offshore fuel manufacturing offline and concurrently disrupted LNG feedgas demand. Within the three months from August to October, offshore manufacturing briefly fell under 500 MMcf/d on three events as many producers shuttered platforms within the Gulf of Mexico. Throughout that 90-day interval, output from the offshore averaged just one.7 Bcf/d – down about 1.1 Bcf/d, or about 40%, from its January-to-July common, knowledge compiled by S&P International Platts Analytics exhibits.
Fluctuations in Appalachian Basin fuel manufacturing, which have change into more and more frequent this autumn, have additionally affected the US bottom-line manufacturing determine by as a lot as 4 Bcf/d just lately, Platts Analytics knowledge exhibits.
Following steep cuts in capital spending and drilling exercise this yr, home manufacturing weak spot seems more likely to persist into the winter months, leaving the day by day market tightly balanced.
Whereas US storage volumes – final estimated by the US Power Data Administration at 3.848 Tcf – stay 260 Bcf above the five-year common, capability limits on single-day withdrawals might create deliverability dangers on peak-demand days this winter. These dangers might be significantly elevated from mid-December by way of February, when US temperatures are sometimes at their coldest.
In current weeks, the rising storage overhang has weighed on bullish sentiment within the ahead fuel market – doubtlessly dampening volatility by later this winter. In mid-December, Henry Hub calendar-month contracts for the peak-demand months of January, February and March remained within the $2.60s/MMBtu, down practically 80 cents from annual highs in late October, S&P International Platts M2MS knowledge exhibits.