Ahead of a long holiday weekend and with front month options and futures expiration just around the corner, natural gas futures continued to retreat early Friday amid potential profit-taking.
The June Nymex contract was off 6.8 cents to $2.589/MMBtu as of 8:30 a.m. ET. July was trading at $2.839, down 8.4 cents.
Prices have been climbing throughout the month of May, but a steep reversal in Thursday’s session cut against that broader uptrend, with the June contract tumbling 18.5 cents day/day.
The selling Thursday, which occurred despite a supportive 78 Bcf injection from the U.S. Energy Information Administration’s (EIA) latest weekly storage report, was likely a result of profit-taking, according to analysts at Gelber & Associates.
“One technical factor at play is the second month July contract’s proximity to the significant $3.00 level, which has acted as resistance since the contract traded up to it” earlier in the week, the Gelber analysts said.
“With July seeing the lion’s share of traded volume as participants have adjusted ahead of June’s expiry, that technical resistance is having implications for the rest of the curve (and especially the front month, whose nearby expiry means that fundamentals are now far less important for its price),” the Gelber analysts added.
As for the 78 Bcf print from EIA, the result reduced the Lower 48 surplus versus the five-year average to 606 Bcf for the period.
The injection landed on the lighter side of expectations and missed notably tighter versus what pre-report supply/demand modeling had indicated, according to Wood Mackenzie analyst Eric McGuire.
“Our miss was fairly evenly distributed across the East, Midwest and South Central regions,” McGuire said. “There were no indicators that pointed to a tightening of this level. As always, we will continue to look into this and will wait for confirmation of this tightness in next week’s number before making any changes to our models.”
Looking at balances for next week’s EIA report, recent Tudor, Pickering, Holt & Co. (TPH) estimates showed production averaging around 99 Bcf/d, with total supply coming in at around 104.8 Bcf/d after accounting for Canadian imports.
This reflects a 600 MMcf/d increase week/week in Northeast output, countered by declines from the Eagle Ford Shale and Permian Basin, according to TPH analyst Justin Martin.
This comes as LNG feed gas demand was flat week/week at 12.9 Bcf/d, Martin said. This included Sabine Pass running below capacity by around 700 MMcf/d, with flows to the Cameron liquefied natural gas terminal coming in 1.1 Bcf/d below capacity, the analyst said.
