July Nymex natural gas futures were lower Thursday as the latest storage data surprised with a larger-than-anticipated injection and as producers appear to be hiking output in preparation for the summer.
At A Glance:
- July futures down 9.4 cents
- EIA prints 84 Bcf build
- Some shut-in production returning
After sharper losses in a knee-jerk response to the storage print, the fresh prompt-month contract settled at $2.572/MMBtu, down 9.4 cents on its first day in the lead position. It added to the prior day’s 15.9-cent routing.
With Thursday’s decline, “the July contract has now retraced over 50% of its move up from the year’s low in February,” analysts with Gelber & Associates said.
NGI’s spot gas National Avg. also tumbled, sinking 12.0 cents to $1.445, coinciding with calls for mild high temperatures for a large swath of the Lower 48 in the coming days.
The U.S. Energy Information Administration (EIA) reported an 84 Bcf injection into storage for the week ended May 24. The build was below the five-year average hike of 104 Bcf and the 106 Bcf increase recorded for the year-earlier period.
The print marked the fifth straight lighter-than-average weekly injection and brought inventories to 2,795 Bcf. That is 380 Bcf higher than the same week last year and 586 Bcf above the five-year average of 2,209 Bcf. It missed most expectations coming into the day. A Reuters survey of 12 analysts produced a 78 Bcf median injection, and a Bloomberg survey generated a 77 Bcf median. NGI modeled a spot-on 84 Bcf injection.
Though storage was a bullish surprise against most expectations, NatGasWeather meteorologist Rhett Milne said other factors, including increased natural gas production, contributed to the retreat.
However, he noted, “There’s still enough heat over the southern United States, as well as a tight enough supply/demand balance, that surpluses will continue gradually decreasing in June from about 600 Bcf toward 500 Bcf.”
Early estimates from Reuters for the week ending May 31 ranged from additions of 73 Bcf to 95 Bcf, with an average increase of 86 Bcf. That compares with an increase of 105 Bcf during the same week last year and a five-year average increase of 103 Bcf.
Power Burn Rises
NatGasWeather said the latest weather data suggests light national demand through the weekend before rising next week as most of the country warms to above-normal temperatures, with highs in the 80s over much of the Midwest, Ohio Valley, and East.
Wood Mackenzie data showed that power burns averaged 32.6 Bcf/d over the recent seven days and is expected to average 36.3 Bcf/d in the coming week.
Wood Mackenzie analyst Eric McGuire said, “Even though power burns are starting to increase as we move into summer, we expect to see larger injections in the coming three weeks.”
He attributed the outlook to the ramp-up of production, “which has recovered significantly with the recent rally in gas prices.” McGuire said that U.S. production currently sits at around 100 Bcf/d after reaching a low of 97 Bcf at the beginning of May.
Tudor, Pickering, Holt & Co. (TPH) analyst Matt Portillo said checks of “individual production points” suggested that some producers were bringing on shut-in supply. TPH modeled domestic supply was poised to increase by 1 Bcf/d in June, which would result in an average output of 101.3 Bcf/d.
Eating away at the rising supply in the long term, Price Futures Group senior analyst Phil Flynn told NGI, “The demand outlook for natural gas looks strong from the LNG front as well as power generation.” However, the United States still “must keep in mind that we’re heading into hurricane season, and that could impact natural gas demand either positively or negatively, depending on when and if these storms hit and where they hit.”
The National Oceanic and Atmospheric Administration (NOAA) said in its May outlook that it predicted eight to 13 hurricanes and 17 to 25 named storms. When wind speeds reach 39 mph or higher, they are assigned names. An average season has 14 named storms, seven hurricanes and three major hurricanes. The agency’s records date back to 1950.
“Given the share of liquefied natural gas exports in the daily gas production, these events can impede cargoes reaching out to the terminals and potential damage to the LNG liquefaction facilities in the event of battering winds,” Wood Mackenzie analyst Nadeem Ahmed said.
“Furthermore, previous active seasons showed power infrastructure can be vulnerable with potential impact on gas to power consumption in the energy mix of the United States,” Ahmed said.
Cash Market Plunges
Spot gas prices were lower across all regional markets as large swaths of the United States are expected to experience mild weather conditions in the near term.
“Storminess over the central U.S. will keep high temperatures below average to end the week, while a potent high-pressure system over the Lower Great Lakes and Ohio Valley also offers refreshing afternoon temperatures in the 70s for large sections of the Eastern United States,” the National Weather Service said Thursday.
In the Midwest, Dawn fell 10.5 cents day/day to an average of $1.375. Though still holding a premium to most hubs, Transco Zone 4 in the Southeast shed 18.0 cents to $2.995. Also of note, in Canada, NOVA/AECO C averaged C$1.145/GJ, down 3.5 cents in heavy-volume trade.
In the Midwest, Dawn fell 10.5 cents day/day to an average of $1.375. Though still holding a premium to most hubs, Transco Zone 4 in the Southeast shed 18.0 cents to $2.995. Also of note, in Canada, NOVA/AECO C averaged C$1.145/GJ, down 3.5 cents in heavy-volume trade.
In the Midwest, Dawn fell 10.5 cents day/day to an average of $1.375. Though still holding a premium to most hubs, Transco Zone 4 in the Southeast shed 18.0 cents to $2.995. Also of note, in Canada, NOVA/AECO C averaged C$1.145/GJ, down 3.5 cents in heavy-volume trade.