Unable to gain traction, September Nymex natural gas futures saw early Wednesday gains ebbed away in favor of modest losses as tides were turning on fundamentals with lingering weather support expected to drift away into the fall shoulder season.
At A Glance:
- Futures retrace early gains
- Market looks beyond heat
- Production cuts possible
The prompt month contract settled the midweek session down 2.1 cents at $2.177/MMBtu. October futures followed with a 1.6 cent-loss to a settlement at 2.314.
NGI’s Spot Gas National Avg. fell 9.5 cents to $1.530 with losses spread widely at hubs across the country.
The National Weather Service (NWS) said drier conditions and generally below-normal temperatures were expected through the weekend as a cold front, forecast to slow its eastward progression offshore the East Coast, would bring in its wake high pressure over much of the Great Lakes region through the East.
NWS said mid-August high temperatures in the Great Lakes and Northeast are likely to be 10 to nearly 20 degrees cooler. Afternoon highs in many areas from the Midwest to the Northeast are expected to top out in the 60s and 70s.
Meanwhile, record-breaking heat was forecast to continue for at least a couple more days across portions of Texas and southern Oklahoma. NWS said excessive heat warnings and advisories remained in effect, and many daily record high temperatures were possible. Temperatures were expected to soar into the 90s and triple digits. Combined with the oppressive humidity, daily maximum heat indices up to 110 degrees were possible.
According to NatGasWeather, the net result of recent and coming weather patterns is for natural gas surpluses to gradually decline from 375 Bcf to near 325 Bcf after the next three U.S. Energy Information Administration (EIA) storage reports print slightly smaller-than-normal builds.
Further, “If U.S. production holds near or under 100 Bcf/d, we expect surpluses will decrease to near 200 Bcf by the time the draw season arrives in late November,” NatGasWeather said. That “could set up a potentially volatile winter if widespread colder-than-normal temperatures arrive early.”
Early storage estimates submitted to Reuters for the week ended Aug. 16 ranged from a build of 20 Bcf to 42 Bcf, with an average increase of 27 Bcf. A Bloomberg survey outlined injections of 21 Bcf to 42 Bcf, with consensus at 25 Bcf. The estimates compare with a five-year average increase of 41 Bcf. NGI modeled a build of 27 Bcf.
If analysts’ models are accurate, a trend of bullish builds would continue relative to historical norms. This included a rare withdrawal for the week ended March 9. For that period, EIA printed a draw of 6 Bcf that lowered inventories to 3,264 Bcf.
Wood Mackenzie estimated Lower 48 natural gas production Wednesday at 100.0 Bcf, down from 100.5 Bcf a day earlier and well below the around 103 Bdf/d earlier in the season. Production was expected to rebound to 101 Bcf/d in the coming weeks as a spate of maintenance events in the Permian Basin and Appalachia are concluded.
LNG feed gas demand was relatively unchanged day/day at 12.7 Bcf/d, Wood Mackenzie data showed.
“Significantly greater natural gas production curtailments are possible over the next 30-45 days to balance retreating weather-driven demand for gas,” EBW Analytics Group senior analyst Eli Rubin said. He warned that if supply does not decline, “weak physical pricing across the country (particularly sub-$1.50/MMBtu spot natural gas prices in Appalachia) could see incremental downside risks.
Meanwhile, Gelber & Associates analysts were looking at demand support from liquefied natural gas facilities. “Feed gas demand has remained resilient despite being impacted by multiple maintenance events,” the analysts said. “We maintain that as these conclude, LNG feed gas demand will have room to push higher.”
Widespread Cash Retreat
Spot gas prices slipped Wednesday as near-term weather outlooks point to milder temperatures and lower demand.
Power demand in Texas on Tuesday reflected excessively hot weather conditions. According to the Electric Reliability Council of Texas (ERCOT), the regional grid operator, demand hit an unofficial record of 85,559 MW, topping the August 2023 record of 85,508 MW. Peak load Wednesday was expected at 83,666 MW.
NatGasWeather said Texas would cool several degrees next week to ease ERCOT demand slightly, “but still quite hot with highs in the 90s.”
West Texas regional benchmark Waha hub slid 2.0 cents day/day to negative 69.0 cents, while a larger 24.0-cent loss at El Paso Permian brought the average to negative 88.5 cents.
NatGas Weather said midday data maintained an impressively hot weather pattern setting up next week for the bulk of the country. Vast stretches of the United States are expected to be hotter than normal, including highs of 90s to 100s over most of the country’s southern two-thirds.
One significant exception awaits in the near term.
A “notable storm with a dip in the jet stream will barrel into Washington, Oregon and Northern California from late week into the upcoming weekend,” AccuWeather meteorologist Alyssa Glenny said.
She said the storm would deliver unseasonably cool conditions from Thursday to Saturday to parts of California, Idaho, Nevada, Oregon, Utah and Washington. Temperatures could be 10-20 degrees below the historical average for late August.
SoCal Border Avg. dropped 19.5 cents day/day to $1.505. Northwest Sumas prices on Wednesday dropped 17.0 cents to $1.430.
