Natural gas futures failed to find a path to a second straight gain this week, despite modestly bullish supply side undercurrents, pockets of demand and strengthening spot prices.
At A Glance:
- Production hangs above 100 Bcf/d
- Overall cooling demand moderates
- Analysts expect bullish EIA injection
Coming off a 7.6-cent gain for the prior session, the October Nymex gas futures contract on Wednesday shed 5.8 cents and settled at $2.145/MMBtu.
NGI’s Spot Gas National Avg. advanced a second day, gaining 20.5 cents to $1.750 as bargain buyers stepped into the physical market after an August lull.
Fundamentals were mixed: Solid liquefied natural gas volumes offset early signs of waning weather demand. On the supply side, hints of lighter fall production countervailed robust levels of gas in storage, StoneX Financial Inc.’s Thomas Saal told NGI.
“The market seems to really be trying to find direction,” Saal, senior vice president of energy, said. “There’s certainly some bullish factors, but overall, we seem to be in a no man’s land right now.”
National Weather Service forecasts pointed to an extension of summer across much of the South and West, including scorching heat in California this week and next. However, mild conditions over swaths of the North and East are to provide offsets, creating the potential for modest national natural gas cooling demand through the first half of September.
Export facilities’ calls for feed gas hovered close to 13 Bcf/d on Wednesday and near summer highs, according to NGI data.
Wood Mackenzie on Wednesday estimated production at 100.6 Bcf/d, down from a seasonal peak around 103 Bcf/d and down 1 Bcf/d from the 30-day average. Analysts are watching closely for a substantial pullback in production heading into the shoulder season, with pipeline scrapes showing at least a gradual tilt lower to date.
“The most critical near-term story may be that daily natural gas production is continuing to decline,” said EBW Analytics Group’s Eli Rubin, senior analyst. “However, weak weather-driven demand for gas may impede progress in narrowing storage surpluses — suggesting range-bound trading may be the most-likely near-term outcome.”
Storage Snapshot
Bulls will next look for support with Thursday’s U.S. Energy Information Administration (EIA) storage report covering the week ended Aug. 30.
NGI modeled a 20 Bcf build, well below the prior five-year average increase of 51 Bcf. Injection estimates submitted to Reuters ranged from 20 Bcf to 33 Bcf, with a median of 28 Bcf. Bloomberg’s pool produced a similar range and a median of 27 Bcf.
EIA posted a 35 Bcf injection for the week ended Aug. 23. It compared with a five-year average increase of 43 Bcf.
Working gas in storage climbed to 3,334 Bcf, putting the surplus at 361 Bcf. But the surfeit of stockpiles relative to the five-year average declined by a percentage point to 12%.
BofA Global Research analyst Francisco Blanch noted that the storage surplus swelled after a mild 2023-2024 winter that intersected with record levels of production. A spring pullback in output and a hot summer helped to gradually move the surplus lower over the past few months.
Still, the overhang could finish the injection season in double-digit territory if benign fall weather settles in this month. Blanch noted that, after falling to the mid-90s Bcf/d in the spring, production rebounded this summer and, while off of summer highs, has consistently held above 100 Bcf/d for three months.
“Forecasts for this coming winter point towards yet another season with temperatures above normal…Weakened demand plus strong inventories and production may create further downside risk,” Blanch said.
Spot Prices
Next-day cash prices varied by region on Wednesday but advanced overall on a recovery in West Texas and ongoing cooling demand across much of the South.
Florida Gas Zone 3 gained 14.0 cents day/day to average $2.415, while elsewhere in the Southeast Transco Zone 5 jumped 38.0 cents to $2.125.
Henry Hub in Louisiana advanced 7.0 cents to $2.055, and Houston Ship Channel rallied 20.0 cents to $1.975.
West Texas prices rebounded Wednesday, but they remained weak as they were through most of the summer amid a Permian Basin supply glut. “Gas producers in Texas are their own worst enemy,” said The Schork Report’s analysts.
Permian benchmark Waha recovered $1.880 but still averaged negative 10.0 cents on Wednesday.
NatGasWeather expects “only moderate national demand through Friday as numerous weather systems impact many regions of the U.S. with comfortable highs of 60s to 80s. This includes heavy rain along much of the Gulf Coast, where numerous inches of precipitation are expected.”
The firm noted “hotter exceptions over the West” – including triple digits in the Southwest and Southern California – as well as 90s and high humidity in the Southeast.
“What’s aiding much lighter national demand this week is much less coverage of highs into the 90s,” which are forecast to be “confined to the West and Southeast…National demand will remain at only moderate levels this weekend as an unseasonably strong cool shot sweeps across the eastern half of the U.S. with highs of 60s to lower 80s,” the firm added. Yet, “it will be very warm to hot over the West this weekend with highs of 80s to 100s for locally strong demand.”
Heat is expected to persist in the South and West next week, but milder air is projected to linger across the North, NatGasWeather said. This creates a “neutral” national weather backdrop for cash markets, though regional price strength may be in the cards.
Meanwhile, on the tropical storm front, Colorado State University (CSU) researchers this week said they expect a relatively mild first half of September. They noted the National Hurricane Center currently is monitoring three areas in the Atlantic Ocean for tropical cyclone development this week or early next, but only one appeared somewhat likely to develop into a powerful storm with the potential to impact the Gulf of Mexico.
That noted, the CSU researchers said conditions “look to get more conducive for tropical cyclone activity towards the middle of September.” They reiterated expectations for above-average activity over the balance of September and October.
