Natural gas futures fell again Monday, losing ground for a fourth consecutive regular session amid ongoing supply/demand imbalance concerns. The August Nymex gas futures contract lost 2.7 cents day/day and settled at $2.512/MMBtu. September slid 2.6 cents to $2.504.
At A Glance:
- Prompt month sheds 2.7 cents
- U.S. production holds strong
- Weather demand endures
Cash markets, meanwhile, further built on advances made last week as summer heat permeated the Lower 48. NGI’s Spot Gas National Avg. gained 14.0 cents to $2.620.
NatGasWeather said forecasts heading into the trading week continued to show more widespread heat and strong national demand in the second half of July. “The coming pattern is still to the bullish side, evidenced by national cooling degree days running hotter than normal” through the end of the month.
Forecasts showed hot high pressure covering most of the Lower 48, delivering searing highs in the 100s across the South and parts of the West. Highs in the 90s along with heavy humidity were expected in stretches of the East and the central United States.
“There will still be dangerous/impressive heat from California to Texas much of the next couple weeks with highs of mid-90s to 110s,” NatGasWeather said.
However, on the bearish side, LNG exports have been soft near 12 Bcf/d in large part because of maintenance events at liquefied natural gas export facilities. Production has held strong around 101 Bcf/d in July, the firm added.
The intersection of export weakness and strong output has, so far, essentially offset the strength in weather-driven natural gas consumption, enabling utilities to inject healthy doses of the fuel into storage and keeping underground supplies at a stout surplus to the five-year average.
“Due to the supply/demand balance being not tight enough, surpluses are expected to remain over 335 Bcf through the end of July,” NatGasWeather said. “To this point, the background state” of robust supplies “remains bearish and why prices keep selling off” on the futures market.
EBW Analytics Group’s Eli Rubin, senior analyst, echoed that thinking. “Projections for a rising storage surplus versus the five-year average despite scorching temperatures are indicative of the challenges facing bulls in coming weeks,” he said.
Rubin noted that the latest Baker Hughes Co. rig count report showed a pair of natural gas rig declines and three oil-directed rig drops – leading the collective Lower 48 rig count to within one rig of 15-month lows. But this has yet to result in consistently lower production.
Storage Scenario
The U.S. Energy Information Administration (EIA) most recently posted an injection of 49 Bcf natural gas into storage for the week ended July 7. The increase lifted inventories to 2,930 Bcf, putting stocks well above the year-earlier level of 2,361 Bcf and the five-year average of 2,566 Bcf.
EIA analyst Jose Villar said Monday production has outpaced demand through the bulk of this year, resulting in more natural gas injected into storage midway through the 2023 refill season (April 1-Oct. 31). Stocks have been at a surplus to the five-year average since January, he said.
Since April 1, net injections into natural gas storage have exceeded the five-year average by 6% (66 Bcf), and working natural gas inventories have reached 69% of working gas capacity so far this refill season, he said. Villar said this is the leading culprit of downward price pressure this summer.
“We forecast that storage injections will slow because of relatively flat natural gas production and increased natural gas use in the electric power sector to meet cooling demand for the remainder of the summer,” he said. “Nevertheless, we expect working natural gas inventories to remain above the five-year average for the rest of the year.”
Looking ahead to the next EIA storage print, covering the week ended July 14, NGI modeled a 41 Bcf increase. That compares with an increase of 35 Bcf a year earlier and a five-year average of 45 Bcf.
Early estimates submitted to Reuters ranged from injections of 45 Bcf to 58 Bcf, with an average increase of 54 Bcf. EIA is slated to release the data Thursday.
Stronger Spot Prices
Picking up on momentum gathered last week, next-day cash prices powered ahead on Monday, boosted by spikes in the West.
SoCal Citygate surged $1.470 from Friday to average $6.165, while SoCal Border Avg. rose $1.415 to $5.460 and Southern Border, PG&E gained $1.080 to $4.925.
NatGasWeather said that, in addition to punishing heat in Texas and the Southwest, the East Coast “will be very warm to hot much of this week with most states experiencing highs of upper 80s to mid-90s.”
While the Great Lakes and Ohio Valley are expected to prove exceptions to the larger rule, the firm sees strong national demand through the end of this month and, potentially, to start August.
“Much of the weather data currently forecasts an impressively hot U.S. pattern for the first week of August, although that’s quite far out and where there’s potential for cooler trends in time,” NatGasWeather said.
Wood Mackenzie analysts on Monday noted that the desert Southwest “has been enduring consistently hotter-than-normal weather since June 25” and forecasts “do not indicate any relief in the near future.”
El Paso S. Mainline/N. Baja prices have been strong all summer as a result. Prices at the hub on Monday jumped 97.5 cents to $4.860.
Wood Mackenzie analysts also said that, while lofty high temperatures are expected to endure in the Permian Basin of Texas and New Mexico, “some slight loosening of fundamental flows may briefly occur soon” because of maintenance on Permian Highway (PHP). On Tuesday only, PHP is slated to perform maintenance on its Coyanosa Compressor Station, which is expected to reduce PHP’s pipeline capacity by 204 MMcf/d – down to a net capacity of about 1.83 Bcf/d.
“However, this is unlikely to decrease Waha cash prices by much, if at all” on Tuesday, the Wood Mackenzie analysts said. “PHP had a similar reduction in capacity on June 13,” and “we did not observe much of an impact on Waha spot price around that time.”
Ahead of the repair event, however, prices at the Waha hub on Monday fell 18.5 cents to $2.055.
