August natural gas futures began the week deep in oversold territory but with a clear line of sight on the next key technical support level should Hurricane Beryl cause significant demand destruction.
Heading into the extended Fourth of July holiday weekend, the August New York Mercantile Exchange (Nymex) contract settled at $2.319/MMBtu Wednesday (July 3). On Monday, the prompt month natural gas futures contract moved higher, posting an intraday high of $2.390 before settling at $2.366.
In comparison, next-day Henry Hub cash prices last Wednesday were $2.050, down 3.5 cents from Tuesday, according to NGI’s Daily Gas Price Index data. After Henry Hub spot gas traded between $1.800 and $2.150 Monday morning, NGI’s MidDay Price Alert showed Henry Hub down another half-penny at $2.045.
“The August gas contract slumped to its lowest level since February as the trajectory of Hurricane Beryl shifted northward and closed ports at Corpus Christi, Freeport and Houston, threatening natural gas demand destruction in an extremely oversupplied market,” EBW Analytics Group analyst Eli Rubin said.
In the immediate term, Rubin said the August contract is technically oversold. A relief rally was possible “if there are no reports of lasting damage from Beryl,” he said.
NGI’s Pat Rau, senior vice president of Research & Analysis, agreed. “August is very much in oversold territory,” Rau said. “Beryl, of course, is the key short-term wild card.”
Rau said if Beryl was to bring “too much havoc to the Gulf Coast LNG supply chain,” futures face resistance at August’s exponential moving average of $2.42.
All eyes were on Beryl Monday. The Category 1 storm was about 45 miles north-northeast of Matagorda, TX, and about 40 miles southwest of Houston at about 7 a.m. ET, according to the National Hurricane Center (NHC). The storm was headed north at about 12 mph. A turn toward the northeast with increased forward speed was expected through Tuesday.
On the forecast track, the center of Beryl was expected to move over eastern Texas and then through the Lower Mississippi Valley into the Ohio Valley on Tuesday and Wednesday, NHC said.
According to U.S. Power Outages, about 2.5 million electric customers in Texas were without power as of 12 p.m. ET.
Meanwhile, updates from liquefied natural gas facilities indicated no significant impact from the storm.
Without much demand destruction, August’s next technical support level “isn’t just some esoteric technical level that may require a certain degree of subjective interpretation,” Rau said. It is the $2.209 all-time low for the contract that the market established earlier this February.
If August falls below that key $2.209 level, Rau said it could have secondary support marked by the bottom of the current 20-day Bollinger Band at $2.12.
The Bollinger Band, a moving statistical bell curve, provides technical analysts a roadmap as to how high or low a contract may trade on any given day. The indicator uses three lines, including a simple 20-day moving average and upper and lower boundaries based on two standard deviations from that period’s mean.
Rau said if August futures fell below key support levels, it would likely result from loosening fundamentals. He noted that the market had no problem driving Henry Hub cash prices below $2 earlier this year.
Henry Hub spot gas traded between $1.800 and $2.150 on Monday.
“Remember, EQT Corp. has been bringing back some of its 1 Bcf/d of curtailed production with the in-service of Mountain Valley Pipeline LLC, but we estimate there is still another 3-4 Bcf/d of industry production that could come back online within a few short weeks,” Rau said.
“The gas market may soon enter a blistering stretch of 99 cooling degree days/week with very low net injections into late July,” Rubin said. The “narrative has been recast, however – and vast natural gas oversupply suggests any near-term rebound rally may reverse in early fall.
