The August Nymex natural gas futures contract, at the front of the curve for the first time on Thursday, traded in a narrow range of gains and losses much of the session, but ultimately lost further ground as supply/demand imbalance concerns festered.
At A Glance:
- EIA reports 52 Bcf storage build
- Production hangs near 100 Bcf/d
- Overall demand outlook bright
August futures shed 6.0 cents day/day and settled at $2.685/MMBtu. It had dropped 11.8 cents the prior day. Prompt month trading proved volatile through much of June.
Cash prices have been on a choppy path, too. NGI’s Spot Gas National Avg. on Thursday dropped 31.0 cents to $1.755. It shed 14.0 cents the prior day but posted gains earlier in the week.
“Natural gas can’t seem to get a handle on which way the wind is blowing,” said Price Futures Group analyst Phil Flynn.
On Thursday, futures see-sawed before and after the U.S. Energy Information Administration (EIA) reported an injection of 52 Bcf into natural gas storage for the week ended June 21. The result was essentially on par with expectations but fell far shy of the five-year average build of 85 Bcf.
Prior to the report, the median of Reuters’ poll landed at 50 Bcf, while Bloomberg’s survey generated a median estimate of 54 Bcf. NGI modeled a 54 Bcf increase.
The increase boosted inventories to 3,097 Bcf, keeping stocks above the year-earlier level of 2,783 Bcf and the five-year average of 2,569 Bcf. However, the surplus to the five-year average narrowed by two percentage points from the previous week to 21%. It extended a weeks-long trend. The surfeit had exceeded 40% in March.
Still, prices struggled for direction, “trampling on both sides of unchanged,” as Mizuho Securities USA’s Robert Yawger, executive director of energy futures, put it. He noted the surplus improvement – as well as needed further improvement for market balance.
By region, the Midwest and East led with injections of 17 Bcf and 15 Bcf, respectively, according to the latest EIA storage data. The South Central build of 11 Bcf followed. Mountain region stocks increased by 7 Bcf, while Pacific inventories rose by 4 Bcf.
Looking ahead to the next EIA print, analysts were anticipating another seasonally light increase. Early injection estimates submitted to Reuters for the week ending June 28 ranged from 13 Bcf to 76 Bcf, with an average of 41 Bcf. The average estimate compares with a five-year average increase of 69 Bcf.
Bullish Weather Pattern
The storage projections reflected bullish weather data.
National Weather Service (NWS) data on Thursday showed seasonal temperatures over the northern third of the United States but above-average conditions across much of the rest of the country, with highs from the upper-80s to the low 100s. Hotter-than-normal temperatures were expected to spread across more of the Lower 48 in the week ahead.
The weather outlook “remains a bullish factor for the gas market,” said Rystad Energy analyst Masanori Odaka. The analyst also noted a weather system tracking toward the Gulf of Mexico that could form into a tropical storm and “affect some gas production.”
However, Odaka noted that Rystad continued to forecast production rising to 102 Bcf/d this summer. Elevated output has been a consistently bearish theme during June trading.
Production has hovered between 100 Bcf/d and 101 Bcf/d this week, according to Wood Mackenzie. That is roughly in-line with the 30-day average and well above the spring lows in the mid-90s Bcf/d.
The gas export picture also is mixed in the early days of summer.
Wood Mackenzie analyst Nadeem Ahmed noted that Texas Eastern Transmission LP on Wednesday (June 26) began feeding gas to a pending Venture Global LNG Inc. liquefied natural gas export terminal through Gator Express in Louisiana. The initial “small volumes” to Plaquemines LNG “appear to be the test of the pipeline infrastructure, as the facility is expected to start exporting in late 2024,” Ahmed said.
The facility is among several poised to open along the Gulf Coast and drive a surge in LNG demand through the remainder of the decade. Goldman Sachs Group analysts this week projected that global LNG supply could grow more than 50% by 2029. The United States, “without any doubt, is dominating future supply,” they said.
However, total LNG feed gas volumes this week slipped below 12 Bcf/d because of maintenance work at multiple facilities. Feed gas volumes on Thursday were off more than 1 Bcf/d from recent highs, NGI data show.
Cash Prices Clunk
Prices for spot gas traded Thursday for delivery Friday through the weekend plummeted, as temperatures moderated in the Midwest and East. Weakness in West Texas further empowered bears.
NWS forecasts showed above average temperatures persisting through at least mid-July across a majority of the Lower 48, including widespread highs in the 90s and 100s throughout the South.
However, cooling rains doused portions of the nation’s midsection on Thursday, and such conditions were developing in the East, too.
Chicago Citygate fell 17.5 cents day/day to average $1.965, while Michigan Consolidated dropped 20.5 cents to $1.880, and OGT in the Midcontinent lost 19.5 cents to $1.660.
In the Northeast, meanwhile, AccuWeather meteorologist Alex Sosnowski said elevated heat index conditions in the upper 80s in the region – factoring in humidity -- began to taper on Thursday. Cooler conditions were expected for the weekend.
In the wake of thunderstorms late in the week, “temperatures and humidity levels will once again be trimmed,” Sosnowski said. Highs could “trend downward by 8-15 degrees from midweek peaks.”
Algonquin Citygate near Boston on Thursday lost 34.0 cents to $1.680.
In West Texas, where prices dropped into negative territory early this week amid pipeline maintenance events that backed up supply in the Permian Basin, hubs mounted a recovery Wednesday. However, they nosedived again on Thursday. Permian benchmark Waha fell $3.255 to negative $3.240.
