Trading action along the Nymex natural gas futures curve was like watching paint dry on Monday, with the prompt month swinging in a tight range given no major changes to fundamentals. The September Nymex gas futures contract settled at $2.795/MMBtu, up 2.5 cents from Friday’s close. October futures tacked on 1.6 cents to $2.898.
At A Glance:
- Supply side still bearish
- Weather models mixed
- West cash prices surge
Western U.S. markets led the move higher for cash prices, lifting NGI’s Spot Gas National Avg. up 25.5 cents to $2.885.
Coming off a week in which natural gas futures surged close to $3.00 before collapsing, traders were tuned into weekend weather models to see whether there might be enough heat left in the forecast to meaningfully move prices one way or another. There was not.
NatGasWeather said the latest weather data was a little cooler trending for the front six days but a little hotter for the seven- to 12-day forecast. This is likely why prices were choppy, according to the forecaster.
To the bullish side, a tighter balance is expected by the end of the month as heat continues to chip away at storage surpluses that developed this summer, NatGasWeather said. The firm sees the overhang to the five-year average sliding from 303 Bcf to near 250 Bcf, aided by an overall hot U.S. pattern the next couple of weeks.
Last week, the Energy Information Administration (EIA) said stocks for the week ending Aug. 4 had risen by 29 Bcf. The build was larger than expected by the market, but lower than historical injections. The build lifted stocks to 3,030 Bcf, which is 535 Bcf above year-earlier levels and 305 Bcf above the five-year average.
Looking ahead to this week’s EIA inventory report, which covers the week ending Aug. 11, analyst projections ranged widely on Monday from 21 Bcf to 47 Bcf. NGI modeled a 36 Bcf injection. This compares with a 21 Bcf build in the year-earlier period and a 41 Bcf five-year average build.
Beyond the storage situation, though, there wasn’t much other supportive data that would boost prices.
U.S. production has started to recover following some maintenance events, with output sitting close to 101 Bcf/d on Monday and not too far removed from earlier-year highs, according to estimates.
At the same time, LNG demand remains soft near 12.5 Dth/d, generally in line with where intake volumes have been over the past week or so, but well off the 14-plus Dth/d levels seen earlier this year. In addition to extended maintenance that has curbed feed gas deliveries to U.S. export terminals, extreme heat in Texas and on the Gulf Coast may be limiting operations. With European stocks also having increased to about 90% full much earlier than normal, and several months of the refilling season to go, EBW Analytics Group said liquefied natural gas exports may continue to run below capacity.
“Last week’s natural gas price surge does little to reset the fundamental market outlook aside from accelerating the realization of gains previously anticipated in the medium to longer term,” EBW senior energy analyst Eli Rubin said.
The current Nymex futures present a fair value for the October contract, according to Rubin. However, the landscape of likely near-term catalysts – including the opening of the 0.5 Bcf/d Whistler Pipeline in the Permian Basin, hurricane risks and seasonally ebbing demand – notably lean in a bearish direction.
“Longer term, lofty Nymex winter risk premiums may prove difficult to sustain absent a cold start to the heating season,” he said.
A Cold Front, Really?
Spot gas prices recovered from their weekend slump, fueled in part by the continuation of extreme heat in the Pacific Northwest/Northern Rockies over to Texas.
The National Weather Service (NWS) said a strengthening ridge of high pressure would lift high temperatures to the low 90s around Puget Sound, and the upper 90s to low 100s in the interior Northwest and Northern Rockies. Even higher, triple-digit temperatures – potentially above 110 degrees – may hit the interior valleys west of the Cascades in Oregon. Numerous near record-tying/breaking highs are possible, according to the forecaster.
The jump in natural gas demand sent spot gas prices at Northwest S. of Green River up $1.030 from Friday to average $3.645 for Tuesday’s gas day. El Paso Bondad also jumped more than $1.000 to $3.720.
Larger price gains were seen in the Desert Southwest, where KRGT Del Pool shot up $1.990 from Friday to average $6.450. Not to be outdone though, the SoCal Citygate rocketed $3.295 to average $8.055. The Southern California location recorded the highest price in North America on Monday.
Notably, it’s still hot as hell in Texas, but prices – while higher than Friday – still averaged well under $3.00 for Tuesday gas delivery. Katy cash was up only 2.0 cents to $2.510, and Tennessee Zone 0 South was up 8.0 cents to $2.435.
NWS forecasters said a well-anchored upper-level ridge, with widespread heat-related advisories and warnings, spanned from Florida, north to the Carolinas and west to Texas/Oklahoma. High temperatures are forecast in the mid-90s in Florida and the Carolinas, the upper 90s to low 100s in the Southeast into the Lower Mississippi Valley, and as high as 105 into portions of Texas. These temperatures when combined with high humidity would allow for “sultry heat indices as high as 110-120 for many locations.”
Meanwhile, a consolidating/organizing frontal system was expected to hit the Lower Great Lakes, where lengthy, heavy rainfall was possible. Downpours also were possible from the Upper Tennessee/Ohio Valleys, east through the Appalachians into the northern Mid-Atlantic.
In addition to flash flooding, vertical wind shear could portend more robust, organized storms that could produce damaging winds, as well as a few tornadoes. The “cold front” was forecast to slow as it approached the East Coast late Monday, allowing for renewed storm development Tuesday ahead of the front from the DelMarVa south through the eastern Carolinas.
“Highs ahead of the front in the Mid-Atlantic will remain seasonably warm in the mid-80s to mid-90s, while locations to the north of the system into New England and behind the front across the Great Lakes/Midwest witness unseasonably cooler and mainly in the 70s,” NWS forecasters said.
As for pricing, Appalachia markets increased by less than 20.0 cents from Friday and remained well under the $2.000 mark. Similar price action was seen at most Northeast locations, though Tenn Zone 6 200L shot up 38.5 cents to $1.850.
