Natural gas futures rallied anew on Monday against a backdrop of looming summer weather, lighter production and an improving storage situation.
At A Glance:
- Temperatures mount in South
- Production around 98 Bcf/d
- NGI models 75 Bcf injection
After gaining 5% last week – despite a drop Friday – the June Nymex gas futures contract on Monday advanced 12.9 cents day/day and settled at $2.381/MMBtu.
NGI’s Spot Gas National Avg. gained 6.0 cents to $1.505.
Wood Mackenzie estimated production at 98.3 Bcf/d on Monday. That was on par with the prior 30-day average, indicating that output has settled at a meaningfully lower level than the all-time highs around 107 Bcf/d reached early in 2024. Multiple major producers pulled back over the past two months to balance the market after that lofty level of output intersected with a mild winter.
On the demand side, NatGasWeather said the northern two-thirds of the country are poised to see mostly seasonal weather through this week and into the next. Cooling rains also are likely to pepper much of the country in coming days, canvassing swaths of the Midwest, South and Northeast. However, this could be offset by early summer heat in the South that is expected to keep air conditioners buzzing.
LNG demand, meanwhile, continued to show signs of recovery at the start of the week, NatGasWeather said. Maintenance events at liquefied natural gas export facilities, notably at Freeport LNG in Texas, slowed feed gas flows through April and early May. Freeport on several days called for no supplies. But feed gas to the facility hovered near 2 Bcf/d late last week and to start this week, NGI data showed.
NatGasWeather also noted that natural gas storage surpluses relative to the five-year average remain robust following the recent benign winter and the record production earlier this year. But with output substantially lower through the spring season and spots of summer-like weather in early May – and more to come in June – a surplus of inventories has started to narrow and could continue to do so.
While “surpluses remain massive,” NatGasWeather said, “they will gradually be whittled down as late spring and summer progress.”
The U.S. Energy Information Administration (EIA) printed an injection of 79 Bcf into storage for the week ended May 3. The build boosted inventories to 2,563 Bcf and put underground stockpiles 33% above the five-year average of 1,923 Bcf. But the surplus to historical norms did shrink by two percentage points from the prior week.
Looking to Thursday’s EIA report, covering the week ended May 10, NGI modeled an injection of 75 Bcf. That compares bullishly with a five-year average of 90 Bcf.
Analysts at The Schork Report said speculators are increasingly staking out long positions in natural gas this month, anticipating further price strength as the market approaches summer with consistently lighter levels of production.
“In the Henry Hub natural gas complex, bullish specs far outweigh bears,” they said, with long contracts more than doubling short positions in a key swap market.
EBW Analytics Group’s Eli Rubin, senior analyst, similarly noted short covering.
“The net gains pushed speculator positioning into bullish territory for the first time since the early-January short squeeze ahead” of winter storms at the time, Rubin said. “In the near term, consolidation of the prior week's gains is possible as the short squeeze ebbs and the gas market searches for new buyers. Fundamentally, however, the market is on the verge of substantial, repeated declines in storage surpluses in late May and beyond — potentially setting up a bullish run into summer.”
Cash Prices Climb
After gathering modest momentum last week, spot gas prices kept ticking up on Monday with support from recovering West Texas prices.
A spate of Permian Basin pipeline repair projects suppressed the flow of associated gas out of the region in recent weeks, creating a supply glut there and battering prices.
But some of that maintenance work is culminating this month, and Permian benchmark Waha prices on Monday, while still weak, clawed back toward positive territory. Prices at the hub averaged negative 88.5 cents but were up $1.475 on the day.
El Paso Permian gained $1.825 but still hovered in the red at an average negative 96.5 cents.
NatGasWeather said that, for the next two weeks, cooling demand would be mixed. Prices across the Lower 48 largely followed the forecasts, with southern hubs leading the national average higher.
Southern Natural in Louisiana climbed 19.5 cents to $2.270, while Florida Gas Zone 3 rose 24.5 cents to $2.935, and KRGT Del Pool in the Southwest advanced 11.5 cents to $1.715.
The northern two-thirds of the country "will be very nice temperature-wise, with highs of upper 60s to 80s and why national demand will be rather light,” NatGasWeather said.
But the southern third of the Lower 48 “will be very warm to hot, including southern and western Texas, where highs will often reach the upper 80s to mid-90s. Essentially, the southern U.S. will be the primary driver of demand in the weeks ahead,” the forecaster added.
Alex Sosnowski, AccuWeather senior meteorologist, said spring storms would present wildcards through the remainder of May. This is likely to prove particularly important in the heavily populated Northeast.
“Finding a stretch of dry days may be a difficult, if not impossible, task in the northeastern United States through this week and perhaps into next,” Sosnowski said. “A pattern will be in place where one weather system or another will produce extensive areas of clouds, showers and, in some cases, hours of steady rain. Soon after one storm leaves with its clouds and lingering showers, a new storm will already be brewing in the Midwest with eyes for the Northeast hours to a day later.”
Thunderstorms and rounds of rain also are in the cards for much of the South, from Texas to Florida, according to AccuWeather.
