July natural gas futures resumed their decline in early trading Tuesday, undercut by higher estimates for Lower 48 production.
The July Nymex contract, set to expire Wednesday, was off 5.1 cents to $2.760/MMBtu at around 8:44 a.m. ET. August was off 7.3 cents to $2.875.
Total domestic production has rebounded after bottoming out around 98 Bcf/d in late April. Output could be taking another leg higher after Monday was revised higher by 1.6 Bcf/d to 102.0 Bcf/d, the first it has reached that threshold since early March, according to Wood Mackenzie data. Tuesday’s initial estimate was 99.4 Bcf/d, Wood Mackenzie data showed.
July futures had probed as high as $2.844 in the morning before losing their footing around 7:15 a.m. ET. The approaching expiry of the contract typically adds volatility to trading, according to EBW Analytics Group analyst Eli Rubin. He also noted that production often rises at the end of the month, and that “may offer a short-lived soft patch for the August contract.”
Looking at updated forecasts, the European weather model added three cooling degree days (CDD) overnight to put it seven CDDs hotter over the past 24 hours, NatGasWeather said. The model had walked back half of the 14 CDDs it shed over the weekend. Meanwhile, the American model was mostly unchanged.
“The overnight data maintains a rather hot U.S. pattern for the coming 15 days to give weather sentiment a bullish lean,” NatGasWeather said. Highs in the 90s to 100s in the southern two-thirds of the country may drive “strong to very strong national demand,” while northern areas could see “nice to warm” weather systems.
Elsewhere on the demand side, LNG feed gas demand “continues to stumble on low intake at Cheniere Energy Inc.'s Sabine Pass and Corpus Christi” export terminals, Rubin said.
U.S. liquefied natural gas feed gas demand has hovered around 12.8 Bcf/d since sinking to a nearly two-month low of around 11.8 Bcf/d on Friday, according to NGI’s North American LNG Export Flow Tracker. Feed gas demand was around 13.5 Bcf/d before Sabine Pass began maintenance in early June.
Bulls could see support on the supply side this week as the U.S. Energy Information Administration is expected to show a seasonally light injection into storage because of the intense heat in mid-June.
NGI modeled a 54 Bcf increase for the week ended June 21, below both the five-year average injection of 85 Bcf and year-ago build of 81 Bcf.
Total Lower 48 working gas in underground storage stood at 516 Bcf, or a 23% surplus to the five-year average as of June 14. That’s down from about 35% in late April.
