Against a backdrop of strong production, hefty supplies in storage and a demand-thwarting hurricane, natural gas forward prices struggled for direction and ultimately gave up ground.
Despite intensifying heat early in July and forecasts for more in the weeks ahead, front month fixed prices at benchmark Henry Hub slipped 10.8 cents for the July 2-July 10 period, declining to $2.332/MMBtu at the close of that span, NGI’s Forward Look data show.
“People are stepping back, taking a big macro view of things and seeing a lot of moving parts, some bullish and some not so much, and that creates uncertainty,” U.S. Global Investors head trader Mike Matousek, based in Texas, told NGI. “When people are uncertain, they tend to go into wait-and-see mode.”
Fixed prices fell week/week across most regions. Chicago Citygate lost 10.6 cents to $1.871, while SoCal Citygate shed 65.5 cents to $3.125. Houston Ship Channel fell 9.3 cents to $2.000.
Waha proved a rare exception. The West Texas benchmark, which had recently traded in negative territory amid a supply glut caused by maintenance events, rebounded 77.0 cents to 76.8 cents.
Wood Mackenzie estimated on Wednesday – the final day of the latest Forward Look period – that the seven-day Lower 48 production average was 101.2 Bcf/d. That far exceeded spring lows in the mid-90s Bcf/d and was within striking distance of the summer’s peak of slightly above 102 Bcf/d.
At the same time, underground inventories remained plump. The latest storage print from the U.S. Energy Information Administration (EIA) on Thursday showed that as of July 5 supplies were 19% above the five-year average.
LNG demand, meanwhile, also was subdued during the latest Forward Look period, hovering below 12 Bcf/d – more than 1 Bcf/d from recent highs. This was in part due to lingering effects from planned maintenance events, as well as Hurricane Beryl, which made landfall in Texas at the start of this week. It caused widespread power outages and forced pauses at liquefied natural gas facilities.
[Forward Look: Quickly understand where the price of natural gas is headed with these graphic day-on-day comparisons of NGI's forward curves at 70 locations. View Now.]
“Shoot, when a hurricane comes through, it creates the potential to mess up everything,” including energy demand, Matousek said.
He said Beryl reminded forward-looking traders of the demand-destruction capabilities of severe storms. At the same time, Matousek noted that AccuWeather and other forecasters have projected the current hurricane season could prove among the most active on record.
AccuWeather “continues to warn of a supercharged Atlantic hurricane season that will be bustling with activity later this summer and into autumn,” meteorologist Brian Lada said this week.
Futures Stumble
Prompt month natural gas futures struggled throughout the first two weeks of July, though the market did mount a relief rally on Friday. The August contract gained 6.1 cents on the day to settle at $2.329. But it was only the second advance of the month so far.
A bearish storage report relative to expectations amplified the cause of the recent slump. EIA printed a build of 65 Bcf that far exceeded the medians of major polls that coalesced around the mid-50s. NGI modeled a 55 Bcf build.
The result for the July 5 period also was stout relative to the year earlier and five-year average builds, which were each 57 Bcf.
Storage “remains at robust levels,” Rystad Energy analyst Wei Xiong. “Our balances indicate healthy storage levels this winter, which will keep our Henry Hub forecast lower.”
The increase for last week boosted inventories to 3,199 Bcf, putting stocks 504 Bcf above the five-year average.
NatGasWeather said exceptional cooling demand lies ahead and could help to reduce the storage surplus relative to the five-year average. Its forecast called for intense heat across much of the country this weekend, followed by a brief reprieve. More widespread lofty temperatures are then expected through late July “for a return to very strong” national gas consumption.
“The net result of recent and coming weather patterns is for surpluses to be gradually reduced towards 400 Bcf in early August,” NatGasWeather said. “But again, while surpluses are being reduced, the pace isn’t quick enough for many and a big reason natural gas prices have plunged recently.”
The Schork Report’s analysts agreed: “Despite current strong demand due to hot weather, the market anticipates that these high inventory levels will persist into the next winter.”
Preliminary injection estimates for the week ended July 12 submitted to Reuters ranged from 18 Bcf to 55 Bcf, with an average increase of 38 Bcf. That compares with a five-year average build of 49 Bcf.
In addition to weather, favorable economic conditions could support the energy sector. An easing pace of inflation could pave the way for a Federal Reserve (Fed) interest rate cut this fall. Lower rates could encourage borrowing to build new infrastructure or lower financing costs for projects already underway, including multiple new Gulf Coast LNG projects in the works, as Matousek noted.
The U.S. Labor Department said Thursday that its Consumer Price Index slowed 0.1% month/month to a pace of 3.0% in June, the lowest level since 2021. Inflation had soared above 9.0% in 2022 in the pandemic’s wake and during Russia’s initial invasion of Ukraine. The Fed responded with multiple interest rate increases that boosted borrowing costs and slowed spending – and aimed to gradually cool inflation.
Several economists issued reports in recent days saying the Fed had succeeded. Should inflation dip closer to the central bank’s 2% target over the summer, a rate cut is in the cards for September and possibly could be followed by another in December, said BNP Paribas’ Andy Schneider, senior U.S. economist.
