The July natural gas futures contract finished its front-month run with a whimper on Wednesday. Bullish weather forecasts were countered by solid production and uncertainty about LNG export volumes ahead of the next government inventory print.
At A Glance:
- Output hovers around 100 Bcf/d
- Cooling demand set to intensify
- Analysts see 50s Bcf storage build
The July Nymex gas futures contract settled at $2.628/MMBtu, down 12.8 cents in its final session as the prompt month. August, which moves to the front of the curve Thursday, fell 11.8 cents to $2.745.
NGI’s Spot Gas National Avg. shed 14.0 cents to $2.065.
Mobius Risk Group said traders this week wrestled with contrasting fundamentals. Bears seized upon strengthened production and uncertain liquefied natural gas demand, they noted. Bulls, however, were hardly ill-equipped, as air conditioners cranked in full force across vast expanses of the country amid near-record late June heat. Forecasts called for more of the same in the month ahead.
Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI that fund managers also are cautiously buying and selling as prices reach high and low technical resistance points.
As a result, “every time the market rallies it gets sold back off rather quickly,” he said. For the August contract, he said entering Wednesday there was technical support around the $2.780 level, and “a breakdown through that could see prices fall to the $2.690-$2.645 level, where there is solid support.”
Production on Wednesday clocked in at about 100 Bcf/d, according to Wood Mackenzie estimates. The seven-day average was nearly 101 Bcf/d, up substantially from spring lows in the mid-90s Bcf/d.
Cheniere Energy Inc.’s Corpus Christi LNG terminal in Texas, meanwhile, was wrapping up a repair and upgrade pipeline project Wednesday that had curbed its gas intake by 30%. This came atop Cheniere’s June maintenance at its Sabine Pass LNG terminal in Louisiana that kept volumes there below normal levels for most of June.
Additionally, on Tuesday, Freeport LNG endured a trip on its Train 2 that lasted until the following morning. NGI’s U.S. LNG Export Flow Tracker showed Freeport operating at 75% of its capacity on Wednesday.
LNG feed gas flows fell below 12 Bcf/d this week after hanging close to 13 Bcf/d at various points in June, according to NGI data.
The maintenance work injected uncertainty into a market eager to see export demand firing on all cylinders as both Europe and Asia are seeing pockets of intense heat as well, said EBW Analytics Group’s Eli Rubin, senior analyst.
That noted, he added, weather is king for the natural gas market during the summer months.
“While the immediate term may feature a soft patch” amid “weak LNG and risks of higher supply, the return of blistering heat into the 4th of July and record forecasts may quickly enliven the August contract,” Rubin said.
Still, he cautioned, “the 30-45 day window may remain a tug-of-war between boiling temperatures smashing records to lift demand and returning production bolstered by supply deferrals from a historically weak spring.”
Searing Heat
While forecasts have fluctuated this week, the near-term outlook continued to favor support for the August contract, NatGasWeather said.
The firm said both the European and American weather models continue “forecasting one of the hottest late June into July weather patterns of the past 50 years.” What’s more, longer range data “has been consistent in favoring a hotter-than-normal U.S. weather pattern holding through mid-July to keep weather sentiment to the bullish side.”
Should the prediction bear out, analysts at The Schork Report said massive storage surpluses that formed during a mild winter earlier this year could continue to narrow. The U.S. Energy Information Administration (EIA) reported that the surfeit of underground supply relative to the five-year average, which topped 40% in March, steadily winnowed over the past two months and stood at 23% as of June 14.
This followed a relatively hot spring. “It is officially summer but the Dog Days arrived early this year,” the Schork analysts said, noting that Lower 48 natural gas-fired electricity during the spring was up 3% year/year.
For Thursday’s EIA storage print, covering the week ended June 21, analysts anticipated a below-average build. NGI modeled a 54 Bcf increase, far from the five-year average injection of 85 Bcf.
Injection estimates submitted to Reuters ranged from 32 Bcf to 58 Bcf, with a median of 50 Bcf. Bloomberg’s survey spanned 49 Bcf to 63 Bcf and generated a median estimate of 54 Bcf.
“The net result of recent and coming weather patterns are for the next five EIA weekly storage reports to print smaller-than-normal builds, starting with Thursday's EIA report,” NatGasWeather said.
“Surpluses are still quite hefty” and “it’s going to take time for surpluses to be reduced to more reasonable levels,” the firm added. “This has led to a battle between bulls and bears as the pace of reducing surpluses is too slow for some but fast enough for others.”
Cash Prices
Spot gas prices slipped across most regions, leveling off after strong gains earlier in the week and last week.
In the East, Columbia Gas fell 8.5 cents day/day to average $1.975, while Houston Ship Channel shed 8.0 cents to $2.215.
Chicago Citygate lost 13.5 cents to $ 2.140, and in the West, SoCal Border Avg. dropped 16.5 cents to $2.310.
NatGasWeather said Wednesday “much of the southern two-third of the U.S. will be impressively hot the next 15 days with highs mostly in the 90s and 100s for strong to very strong national demand.” A high pressure system “will rule” a majority of the country next week, generating robust heat and driving continued elevated natural gas consumption, the firm added.
Wood Mackenzie also noted a slew of ongoing pipeline maintenance events across the South, East and Midwest that have caused temporary flow interruptions and impacted prices. Most notably, work in the Permian Basin caused a supply glut early this week and flipped West Texas prices into negative territory on Monday and Tuesday.
Permian benchmark Waha on Wednesday, however, clawed back into positive territory as repair projects culminated. It gained 61.5 cents on the day to average 1.5 cents.
