Natural gas futures slumped lower for a third straight session on Thursday, hindered by a bearish storage print relative to expectations and elevated supply levels overall.
At A Glance:
- EIA prints 22 Bcf storage build
- Production declines slightly
- Strong weather demand looms
The August Nymex gas futures contract on Thursday settled at $2.041/MMBtu, down 7.6 cents day/day.
NGI’s Spot Gas National Avg. shed 9.5 cents to $1.745, falling for a second day.
The U.S. Energy Information Administration (EIA) posted an injection of 22 Bcf natural gas into storage for the week ended July 19. The result exceeded analysts’ bullish expectations for a build around 11-15 Bcf, according to major polls. NGI modeled an 11 Bcf increase.
Gelber & Associates analyst Ryan Parsons said on the online energy platform Enelyst steady production levels continued to match strong summer demand, keeping stockpiles relatively high and pressuring prices.
“July 2024 is already experiencing a record-breaking summer for natural gas power demand and we haven’t hit the peak,” Parsons said. However, despite vows this week from leading producer EQT Corp. to curtail production in the second half of 2024 – after cuts in the spring – output is “still hovering above the 100 Bcf/d mark.”
While fresh declines would “certainly be a catalyst” for prices, Parsons thinks they would prove short-lived. Producers are expected to ramp up later this year ahead of new and expanded LNG facilities slated to open along the Gulf Coast.
Parson “expects to see 104 Bcf/d by the end of the year.”
Still, the EIA result was light relative to recent history. It compared with an increase of 23 Bcf a year earlier and a five-year average build of 31 Bcf.
The Midwest and East regions led with injections of 13 Bcf and 11 Bcf, respectively, according to EIA. Mountain region stocks increased by 3 Bcf, while Pacific inventories were flat. The South Central, as it did a week earlier, reported a withdrawal. The region printed a pull of 6 Bcf.
The increase for last week lifted inventories to 3,231 Bcf, keeping stocks above the year-earlier level of 2,982 Bcf and the five-year average of 2,775 Bcf.
Looking ahead to the next EIA print, covering the week ending July 26, preliminary estimates submitted to Reuters ranged from additions of 15 Bcf to 51 Bcf, with an average increase of 39 Bcf.
The estimates compared with an increase of 15 Bcf during the comparable week last year and a five-year average increase of 33 Bcf.
Bullish Fodder
Fundamentals on Thursday were tilting in bulls’ direction.
Wood Mackenzie pegged production at 101.7 Bcf/d on Thursday, down from upwardly revised levels above 102 Bcf/d for the first three days of the trading week. Output was down slightly from year earlier levels as well.
The firm said liquefied natural gas volumes held even with the prior day at 12.1 Bcf/d, a high point for the week and well above monthly lows close to 10 Bcf/d. LNG facilities on the Gulf Coast were hampered by the former Hurricane Beryl in early July. This notably included a prolonged outage at Freeport LNG. The Texas terminal, in fits and starts, has gradually restarted over the past two weeks.
“We see modest signs of gas market tightening including year/year decreasing U.S. gas production, increasing Chinese and Indian LNG imports, limited LNG supply growth, and rising LNG shipping rates in recent months,” ClearView Energy Partners LLC analysts said Thursday. “That said, gas storage in the U.S. and Europe remains well above five-year averages.”
Lower 48 weather demand, meanwhile, has proved modest this week relative to the first half of July, when sizzling temperatures cooked most of the Lower 48. Seasonal highs and rains spanned swaths of the central and eastern United States in recent days. National Weather Service (NWS) forecasts, however, pointed to a return of extensive and intense heat waves in the first half of August, as well as above average national temperatures through the balance of summer.
Also on the side of bulls is continued steady economic growth that could support commercial and industrial energy demand. U.S. gross domestic product, the broadest measure of the economy, advanced at a 2.8% annual rate in the second quarter, the Commerce Department said Thursday.
Hargreaves Lansdown’s Emma Wall, head of research, said the growth exceeded market expectations of 2%. She said it was fueled by lower inflation – down to 3% from a 2022 peak of 9% – as well as business investment and strong consumer spending supported by a resilient labor market and wage growth.
With inflation falling, Wall told NGI that she anticipates the Federal Reserve (Fed) will in September begin to lower interest rates, a development that could lower borrowing costs, spur loan demand and drive investments.
“We expect an interest rate bonanza in September, with rate cuts from the Fed, European Central Bank and the Bank of England,” Wall said.
Physical Prices
Cash prices on Thursday pulled back across most of the country as cooling demand abated modestly.
Chicago Citygate fell 13.0 cents day/day to average $1.645, while El Paso Permian in Texas lost 11.0 cents to 28.0 cents, and PNGTS in New England dropped 58.5 cents to $2.465.
A few hubs in the West, where lofty temperatures endured, proved the exceptions. SoCal Citygate gained 10.5 cents to $2.910, and SoCal Border Avg. ticked up 4.0 cents to $2.720.
NWS data showed that, while there were stretches of seasonal weather in the nation’s midsection and the East this week into Thursday, most of the country will heat up by the start of next week. Widespread above-average temperatures were forecast to cover nearly all of the country. Highs from the upper 80s into the 100s loomed. Such conditions were projected to extend deeper into August, too.
NWS’s long-range outlook for the next three months showed forecasts calling for high temperatures to exceed historical averages over the vast majority of the Lower 48. If realized, such conditions could drive strong cooling demand through August and into September before easing amid seasonally warm but comfortable temperatures in October.
Before the next shift in conditions in the week ahead, AccuWeather meteorologist Alex Sosnowski noted that, early Thursday, substantial tracts of the East were doused with heavy, cooling rains. Thunderstorms erupted along an approaching cold front from parts of the central Appalachians to the Mid-Atlantic region. That was impacting areas around major cities including Pittsburgh, Charlotte, New York City, Philadelphia and Washington, DC.
However, by Friday, “the risk of showers and thunderstorms will be slashed,” Sosnowski said. “Most of these areas will be free of rain for several days.”
