June Nymex natural gas futures continued to sputter Friday after rising early Thursday to their highest price level since mid-January before finishing sharply lower.
At A Glance:
- Futures down 13.7 cents
- Fundamental sway limited
- Cash down despite heat
The front-month contract settled at $2.520/MMBtu, down 13.7 cents day/day. More heavily traded July futures fell 15.0 cents to settle at $2.773.
NGI’s spot gas National Avg. also retreated, slipping 29.0 cents to $1.535. Lackluster demand for the long Memorial Day weekend butted up against hot weather outlooks.
Analysts with Gelber & Associates attributed June futures’ retreat to profit taking. Participants have adjusted ahead of June’s expiry, the analysts said. As expiration approaches, fundamentals have less of an impact, according to Gelber.
Fundamentals may have more impact on pricing near the May 23 peak heading into summer, “suggesting a rebound from any near-term weakness into the 30-45 day window,” EBW Analytics Group senior analyst Eli Rubin said.
However, heading into the holiday weekend, feed gas flows to liquefied natural gas facilities continued to hold near 12 Bcf/d, according to Wood Mackenzie data. The firm’s analysts expected little change in the fresh week.
Power burn, which supported the lion’s share of recent demand-side strength, was at 33.8 Bcf/d Friday. That was down from 35.2 Bcf/d the prior day, the data showed. A slight respite from extreme heat in portions of the country softened the load. As heat returns, power demand could average 34.3 Bcf/d in the coming seven days, Wood Mackenzie data showed.
NatGasWeather said demand should hold through the Memorial Day weekend as Texas becomes “impressively hot” for this early in the season. Highs are expected in the mid-90s to mid-100s and could “push Electric Reliability Council of Texas to the strongest May demand on record,” the firm said.
Longer-range weather data continued to show heat building in the second week of June over the western and southern reaches of the country. As highs in the 90s spread, national cooling degree days are forecast to climb back above normal, according to NatGasWeather.
But Rubin warned that any return to higher prices supported by the rising cooling demand could be thwarted by increasing supply.
“Gas production is showing signs of life,” Rubin said. Producers, including EQT Corp. and Chesapeake Energy Corp, reduced output in February in response to the low price environment.
Rubin noted Appalachian supply bounced to a two-month high in May on indications that EQT had returned a portion of curtailed volumes amid the recent price rally. Permian Basin natural gas output remains subdued, with “a “possible rebound still ahead,” he said.
Some analysts also noted that higher prices could prompt utilities with dual-fuel capabilities to switch from natural gas to less expensive coal-fired generation.
Storage Overhang Shrinks
Accounting for the fundamental trends, NatGasWeather said the next two U.S. Energy Information Administration (EIA) storage reports could print smaller than normal builds. Additionally, there is enough heat in the forecast for the second week of June for a possible third modest injection, the firm said.
“The net result would be a further reduction in surpluses toward 525-550 Bcf,” NatGasWeather said.
EIA reported utilities injected 78 Bcf of natural gas into Lower 48 storage facilities in the week ended May 17. The print compared bullishly with a five-year average increase of 92 Bcf. It brought inventories to 2,711 Bcf, according to EIA data.
Still, stocks remained well above the year-ago level of 2,309 Bcf and the five-year average of 2,105 Bcf.
Early estimates submitted to Reuters for the week ending May 24 ranged from additions of 80 bcf to 86 bcf, with an average increase of 89 bcf. That compares with an increase of 106 bcf during the same week last year and a five-year average increase of 104 bcf.
Spot Gas Sinks
Physical cash prices for gas delivery May 25-28 were weighed down by the inclusion of the low-demand Memorial Day holiday. Weather limited the retreat in regions where extreme heat was expected as traders weighed the holiday’s potential demand-dampening effects against outlooks for a strong cooling load.
“The forecast is anomalously warm in the one- to five-day period, with peaks in the 90s for much of the South and 80s in the East,” Maxar meteorologist Brad Harvey said during a briefing on energy chat platform Enelyst on Friday.
The Electric Reliability Council of Texas territory was expected to experience the hottest days on Sunday and Monday, which are “days that wind generation projections have been trending lighter,” Harvey said.
Prices at Waha softened 4.0 cents to 20.0 cents despite the heat, while Oneok WesTex gained 8.0 cents to 42.0 cents.
