Natural gas futures on Thursday rallied for a fourth consecutive session, bolstered by a bullish storage print that came on the heels of hotter weather and lower production. The July Nymex gas futures contract settled at $2.533/MMBtu, up 19.1 cents day/day. August jumped 19.6 cents to $2.609.
At A Glance:
- EIA prints 84 Bcf injection
- Production remains low
- Widespread heat looms
NGI’s Spot Gas National Avg. rose 1.0 cent to $1.985.
Futures and cash markets have gained ground every session this week.
The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 84 Bcf natural gas into storage for the week ended June 9. The net result fell well shy of expectations and lit a fuse beneath already momentous futures trading.
“It’s a result that kind of jolted everybody,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI. “Expectations missed by a country mile.”
Ahead of the EIA print, analysts anticipated an increase in the upper 90s Bcf, according to the medians of major polls. NGI modeled a 90 Bcf injection. EIA posted a build of 94 Bcf a year earlier, and the five-year average increase was 84 Bcf.
Saal said that, at least ahead of Thursday, hedge funds held net short positions in natural gas futures, and many of them likely scurried to strike more balance after the EIA report. “To me,” he said, “this looks like short covering by speculators.”
Analysts at The Schork Report said weather-driven demand across much of the North, from the Upper Midwest to New England, was weak amid mild temperatures during the covered period. However, power consumption for gas reached a 10-month high and wind-generated energy was below average.
The increase for the last week lifted inventories to 2,634 Bcf. That put stocks above the year-earlier level of 2,082 Bcf and the five-year average of 2,281 Bcf.
By region, the Midwest and East led with injections of 28 Bcf and 22 Bcf, respectively, according to EIA. The South Central and Pacific regions each posted an increase of 12 Bcf. Mountain region stocks increased by 11 Bcf.
Looking ahead to the next inventory report, analysts are generally expecting a stout storage increase.
Early estimates submitted to Reuters for the week ending June 16 ranged from injections of 89 Bcf to 103 Bcf, with an average increase of 99 Bcf. That compares with an increase of 76 Bcf a year earlier and a five-year average of 86 Bcf.
That noted, some of the early polling came ahead of data this week showing sharp declines in production – more than 3 Bcf/d – because of maintenance events in multiple regions. With that in mind and Thursday’s surprise print, analysts said estimates for the next EIA report could come down notably and spur further bullish sentiment.
“Let’s see what it does for an encore,” Saal said.
Mounting Momentum
Meanwhile, lighter production and expectations for stronger heat continued into Thursday.
National Weather Service (NWS) data showed robust heat in Texas and neighboring states in the South. NWS outlooks pointed to these conditions expanding to northern markets as June wears on, though the timing and breadth of the shift varied in forecasts this week.
Widespread summer conditions could permeate the Lower 48 next week or wait until late June. Either way, traders have anticipated that air conditioners will be cranking in full force around or shortly after the official arrival of summer on Wednesday (June 21), Saal said.
Production has been curbed this week amid several maintenance projects in key natural gas producing regions, from Texas to West Virginia, according to Wood Mackenzie data. Production had held close to 101 Bcf/d this spring. Early this week, it dropped below 98 Bcf/d.
Bloomberg pegged production at 98.6 Bcf/d on Thursday, up about 1 Bcf/d from the prior day but still well off recent peaks.
East Daley Analytics said much of the recent drop is from seasonal maintenance events. Still, the firm’s analysts said “some portion” of the lower estimates “could be attributed to real production declines” in the wake of recent rig count decreases. When producers drop rigs, output tends to gradually follow.
“Total U.S. rig counts have been on a continuous downward trend, with no months ending with rig adds since November,” the East Daley team said in a report Thursday.
Additionally, while LNG feed gas demand has been down more than 3 Bcf/d this week amid repair and upgrade work at liquefied natural gas facilities, demand for U.S. exports could mount as summer weather arrives in Europe. Natural gas prices have rallied in Europe this week on hotter forecasts and protracted maintenance events at Norwegian production facilities.
“We’ll be watching the prices in Europe,” Saal said.
The Federal Reserve Bank’s decision late Wednesday to pause its interest rate hike campaign after 10 increases in 15 months also spurred a broader market relief rally Thursday that provided additional support for energy commodities. This followed a federal report that showed inflation in May declined to a 4% annual pace from 4.9% the prior month.
The market interpreted the Fed’s decision as an indication of notable improvement on the inflation front, analysts said. The Fed is in "wait and see mode rather than looking to hike rates,” said analyst Scott Shelton of ICAP Technical Analysis.
Cash Prices Cruise
Spot gas prices continued to climb Thursday alongside rising temperatures in the South and West.
SoCal Citygate spiked 64.5 cents day/day to average $3.775, while Henry Hub in Louisiana picked up 9.0 cents to $2.170 and Atmos Zone 3 in East Texas gained 12.5 cents to $2.040.
NWS data showed highs this week in the 90s and 100s across Texas and the Southwest. Highs in the 90s and increasing humidity peppered the Southeast. More of the same is in store for next week.
NWS forecasts also showed highs in the 80s and lower 90s spreading across northern markets as soon as early next week.
Chicago Citygate on Thursday rose 5.0 cents to $2.040.
Wood Mackenzie analyst Ricardo Falcon Bautista also noted that summer-like weather has already settled in over large swaths of Mexico, driving cooling demand there. Calls for U.S. natural gas from Texas jumped as a result.
Halfway through the month, U.S. pipeline exports to Mexico were averaging more than 6.5 Bcf/d in June, according to Wood Mackenzie’s preliminary estimates. “This figure is just 0.14 Bcf/d lower than the historical record set in June 2021,” Bautista said. “Representing a 7% month-on-month spike, it also reinforces the uptrend that commenced in May, which has been mainly led by deliveries at South Texas and West Texas exit points.”Benchmark West Texas cash prices at Waha on Thursday slipped 1.5 cents to $1.940 after advances earlier in the week.
