On Monday, October gas gave up 21c, but the winter strip rose 5c. The odd behavior shows how the coming storage-withdrawal season (winter) is acting like a distinct market from the remainder of the injection season (summer and shoulder).
Hedgers should note that winter is showing resilience despite volatility in the prompt month. The “headline” number may sound bad, but deeper inspection shows bullish sentiment for winter. Below, we recap what happened in the curve on Monday, September 21 versus the previous Friday’s close.
The Henry Hub Prompt Month contract weakened further on Monday, falling 21.3c from its open of $2.048/MMBtu, to settle at $1.835/MMBtu. AEGIS notes, the October contract can, at times, be more volatile as the transition from shoulder to heating season occurs, particularly when weather is not playing ball during the transition period while storage facilities switch from injection to withdrawals (and finalize their injections for the season). This may explain the winter seasons rally despite the drop in the October contract price.
Despite the deterioration in prompt month gas pricing, the November contract rose 8c on the day. The rally was not limited to November; however, the winter strip overall was up on the day with December, January, February, and March gaining 3.2c, 2.8c, 2.6c, and 2.2c, respectively. The Winter ’20 ’21 strip gained 5.5c in total.
The difference in price action between the October contract and the Winter month contracts is unusual. October and Winter prices are usually correlated. The expectation that storage will near its demonstrated peak capacity amid faltering demand is likely behind the downward pressure to the October contract seen recently. Usually, when this happens, you would expect the winter month contracts to follow suit.