CME Group Launching “Micro” Henry Hub Futures & Options Nov. 6
For traders who buy and sell NYMEX Henry Hub futures (and there is a fair number who read MDN), listen up! CME Group, which operates the Chicago Mercantile Exchange and New York Mercantile Exchange (NYMEX), announced it is launching Micro Henry Hub futures and options beginning November 6. The standard Henry Hub natural gas futures contract for a single contract trades 10,000 MMBtu of natural gas, equivalent to 10 million cubic feet (MMcf). The new Micro Henry Hub contract is one-tenth that size — 1,000 MMBtu, equivalent to 1 MMcf. The other major difference is that the standard Henry Hub contract costs $10 to execute, whereas the new Micro contract will cost just $1.
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According to the International Gas Union’s (IGU) 2023 Global Wholesale Gas Price Survey report (full copy below), 2022 was THE most turbulent year in the history of gas markets, as the global energy crisis intensified and the global price levels reached record highs. Last year saw record price levels, with Europe’s wholesale prices reaching over $30 per MMBtu. The average world price for natural gas reached $9.44 per MMBtu in 2022 — the highest ever — compared to a record low of $3.23 per MMBtu in 2020. Record high prices last year were seen in all regions apart from North America and the Former Soviet Union.
According to analysts writing for S&P Global Commodity Insights, the long-range forecast from the U.S. National Weather Service calls for milder temperatures in the U.S. Mid-Atlantic region this winter. Warm temps equal less natural gas usage. Williams’ Transco Regional Energy Access Expansion (REAE) project will partially come online in October, flowing an initial 450 MMcf/d (out of 829 MMcf/d) of Marcellus gas to PA, NJ, and Maryland. More supply with less demand is a classic economic prescription for lower prices in New York, New Jersey, and the Mid-Atlantic region. So says the S&P analysts.
We continue to monitor the price of natural gas, which has remained mired in the mid-$2 range for months on end. Every time it seems like it might make a run for $3, the price slides–as it did yesterday (down $0.12 to close at $2.73). We spotted two somewhat contradictory stories about the price of gas, both published by Reuters. One story is about a prediction from Bank of America, which said in a note that if we have a mild winter (as some are predicting), it’s quite possible the price of natgas will crash below $2 during the first quarter of 2024.
Yesterday MDN editor Jim Willis had a nice chat with a renewing MDN subscriber (a landowner with wells and leases in Ohio). The question arose, “What do you see happening right now?” Jim’s response: “As long as the price of natural gas stays below $3, not much!” Jim made the point that price drives this industry, and ongoing prices in the basement aren’t helping. Can we get an amen? Both Jim and the subscriber agreed that gas prices may be heading higher soon. That conversation seems to have been prescient. Yesterday the front-month Henry Hub NYMEX futures price rocketed to a six-week high, close to $3 (closing at $2.96/Mcf). Are we finally going to go above, and stay above, $3 gas?
Once a month, U.S. Energy Information Administration (EIA) analysts issue the agency’s Short-Term Energy Outlook (STEO), their best guess about where energy prices and production will go in the next 12 months. The latest monthly report, issued Tuesday, predicts that U.S. natural gas production AND demand will rise to record highs in 2023. EIA projected that dry gas production will rise to 103 billion cubic feet per day (Bcf/d) in 2023 and 104.12 Bcf/d in 2024. The current record high is 98.13 Bcf/d set in 2022.
Christopher Lewis, who trades Forex (foreign exchange), calls himself “The Trader Guy.” Lewis, writing for DailyForex, is calling attention to charts that (in his opinion) signal natural gas will “likely” reach the $3/MMBtu level soon. With only one or two brief exceptions, the Henry Hub price has traded below $3 since February. For most of the last five months, we’ve been range-bound, with the price of gas trading between $2 and $2.50/MMBtu. It’s lousy! We have eagerly watched for signs and signals the price would go higher. We notice the odd analyst or trader who predicts it, but nothing seems to come of it. Will this time be different? Is the price ready to break through and stay above $3?
Long-range forecasts for hot weather and a lighter-than-predicted storage report for natural gas led to a 6% spike up in the price of the NYMEX Henry Hub yesterday, closing at $2.76/MMBtu. The National Weather Service released modeling yesterday that shows hot temps will get hotter for the end of July and the beginning of August. Also, the U.S. Energy Information Administration (EIA) released its weekly storage report yesterday, showing 41 Bcf was injected into storage for the previous week–lower than a predicted mid- to upper-40s Bcf. That was enough for traders to bid up the NYMEX price.
Even with much of the nation in an extreme heat event making record demands on gas-fired power plants, demand for natural gas appears to be nominal at best, and consequently, the price of natural gas, at least the Henry Hub NYMEX futures price, remains mired in the mid-$2 range. The NYMEX price was down again yesterday, closing at $2.51/MMBtu. That’s the fourth day in a row the price has decreased, hitting the lowest closing price in almost a month–since June 20th.
One of the factors in the price of natural gas is supply. Gas is about as pure a commodity market as you will find worldwide. Higher demand with the same or less supply will drive prices higher. And the reverse is true. Higher supplies with the same or less demand lead to lower prices. Last summer, the world was still coming to terms with the unprovoked invasion of Ukraine by Russia. Europe and many countries worldwide pledged to stop buying Russian natural gas, putting an extreme demand on other sources for gas, including here in the U.S. The situation led to a deficit in available natgas and lower storage. This summer the situation is far different.
We keep a close eye out for any credible news predicting which way the price of natural gas will head in the near and longer term. Everyone has an opinion about whether natgas will go higher, go lower, or stay the same–and why. Nobody could predict what would happen last year after Vladimir Putin declared war and invaded Ukraine. Gas prices when through the roof (along with oil prices) on the theory that Europe would run out of gas and the rest of the world, including the U.S., couldn’t meet the shortfall. But then we had a mild winter–in Europe and here at home. The world exited winter with extra gas sitting in storage. More supply with the same (or less) demand equals lower prices. And that’s exactly where we have been for months–lower prices. What about this summer? Will the price increase? Decrease? Stay the same?
The Henry Hub price of natural gas (even physically traded spot prices around the country) are ever-so-gradually moving higher. Yes, we’re cheerleaders for higher natgas prices! (Not too high, but certainly higher than the current $2-$3 range.) Even though we’re pro-gas and cheerleaders for higher prices (we openly admit our bias), we’re also realists, and we try to bring you the unvarnished truth. Are prices really moving higher? Or is this just another short-term up/down cycle?