Pressured ahead of Wednesday’s expiration, September Nymex natural gas futures slid another 5.2 cents Tuesday in low volume trade.
At a Glance:
- Natural gas futures down 5.2 cents
- Below average storage build expected
- Cooler temperatures ahead
The prompt month contract settled its penultimate session in the lead position at $1.904/MMBtu. The more heavily traded October futures contract settled at $2.085, off 4.5 cents.
NGI’s daily Spot Gas National Avg. was 2.5 cents lower on the day to $1.525 as market focus remained on cooler weather after this week.
Heat continued to engulf Texas and was expected to spread across large portions of the country through midweek, sending cooling loads soaring. Power sector demand climbed Tuesday to 54.5 Bcf/d from 51.9 Bcf/d a day earlier, according to Wood Mackenzie estimates.
This week's extreme heat is forecast to pass quickly, however, "so the market's not even paying a whole lot of attention to the heat wave, because at this point, we're kind of looking past summer," Pinebrook Energy Advisors LLC’s Andy Huenefeld, managing partner, told NGI. "We're going to be trading October gas at the front of the curve here pretty shortly, and I don't think these high gas power burn numbers are really scaring anybody."
Cooler temperatures are expected to roll across the country beginning as early as next week, according to NatGasWeather.
Updated forecasts showed much of the United States could see temperatures in the upper 80s to 100s through Sept. 1. National demand could be “high to very high” in the next five days, NatGasWeather said.
However, national demand could ease in the six- to 15-day period, as the country’s northern half “becomes near perfect” with highs of upper 60s to 80s as weak weather systems track through. Longer range, the 16- to 25-day forecast period favored “very nice temperatures” continuing over the northern half of the United States that could keep national demand only moderate.
With the cooldown, market concerns were persisting over natural gas supply in storage that was at 3,299 Bcf after the U.S. Energy Information Administration (EIA) reported a 35 Bcf injection for the week ended Aug. 16. Inventories were still 13% above the five-year average.
More Surplus Erosion?
Looking ahead to Thursday's EIA inventory data, covering the week ended Aug. 23, NGI modeled a build of 34 Bcf. That compares with a five-year average increase of 43 Bcf. Preliminary polling by Reuters found an average increase of 36 Bcf.
Beyond this week’s report, demand could have been strong enough this week to lead to another fairly tight storage injection "or potentially I don't think it's out of the question to see another withdrawal for the week that ends this Friday," Huenefeld said. He noted, "We're seeing a lot more gas burn per degree day here in August, and that could be chalked up to very low gas prices."
All the monthly price indices across the country "came in really low,” Huenefeld said. August Nymex settled at $1.90 making it hard for coal to compete. With this week’s heatwave, “we are expecting to see power generation demand up in the 49-50 Bcf per day range, which is about as high as it gets,” Huenefeld said.
Inventories are probably going to top out at around 3.9 Tcf or a little less by the end of the shoulder season, Huenefeld said. “It all really comes down to how weather shows up in October and November to determine that exact peak.”
NatGasWeather said surpluses could drop from 369 Bcf to around 325 Bcf by the second week of September. However, the firm noted that the rate at which surpluses were declining “clearly isn't fast enough for the natural gas markets' liking or prices wouldn't have sold off so strongly the past several months.”
Natural gas production curtailments that have been limiting output to around 100.0 Bcf/d could help limit the supply. Production slipped to 101.7 Bcf/d from 102.2 Bcf/d Monday, Wood Mackenzie data showed. Production averaged 101.8 Bcf/d over the last seven days.
LNG export activity was also holding strong near August highs. Total natural gas deliveries to domestic liquefied natural gas facilities were 12.73 Bcf on Tuesday, NGI’s U.S. LNG Export flow Tracker showed. At above 12 Bcf/d, that was on par with the 30-day average, according to Wood Mackenzie.
Cash Prices Down
The rapidly approaching cooldown limited upside support sending spot natural gas prices at most hubs lower on Tuesday.
Even as hot weather was forecast to blanket the central United States into Wednesday, OGT slipped 21.5 cents to average $1.440 and Chicago Citygate averaged $1.650, off 9.5 cents day/day. Meanwhile, Florida Gas zone 3 fell 14.0 cents to $2.220.
The National Weather Service expected temperature highs in Florida to fall from the low 90s Tuesday to the upper 80s Wednesday. Comfortable lows in the upper 70s were expected.
