Natural gas futures on Wednesday jumped on late-June forecasts turning hotter as bulls and bears traded control of market direction for a fourth session.
At A Glance:
- July futures jump 17.1 cents
- Late June forecasts turn hotter
- Waha jumps to three-month high
The July Nymex contract gained 17.1 cents day/day to settle at $2.757/MMBtu. Markets have swung wildly on a day-to-day basis since late last week.
NGI’s Spot Gas National Avg. rose 0.5 cent to $1.780. Natural gas prices in West Texas jumped to a three-month high, while most other regions saw modest declines.
Gains in futures began Wednesday morning then gathered momentum into the afternoon. NatGasWeather attributed the move higher to warmer trends in weather model runs for the nine- to 15-day time frame as well as an ongoing heat wave in western states.
Both the American and European datasets “trended hotter with the pattern for June 15-20 as upper high pressure expands in coverage to rule most of the U.S. with highs of mid-80s to 100s, hottest California to Texas,” NatGasWeather said.
Ahead of that second bout of heat, national demand was expected to lighten up late this week and into next, NatGasWeather said. And for markets, the forecaster leaned to participants keeping on their seatbelts. “There’s been wild swings in prices over the past week, and we expect daily 10- to 20-cent moves will continue,” it said.
TC Energy Corp.’s ANR Pipeline Co. on Tuesday lifted a force majeure related to an equipment failure that had been limiting flows through its Eunice Southbound location in Acadia Parish, LA. However, ANR on Tuesday declared a different force majeure at its Evangeline southbound location, another Louisiana throughput meter to the north of Eunice. Work to fix an “anomaly” discovered after an in-line inspection would cut capacity by 327 MMcf/d to 980 MMcf/d until June 17, ANR said.
“One problem solved, another one popped up. Maintenance whack a mole,” a market participant said on online energy platform Enelyst.
Offsetting that latest reduction of gas supply into South Louisiana is lower demand from Cheniere Energy Inc.’s Sabine Pass LNG export terminal in Louisiana that kicked off maintenance Monday.
Feed gas nominations to the liquefied natural gas terminal have fallen as much as 0.8 Bcf/d since late last week. Wednesday nominations were about 3.8 Bcf/d, down from about 4 Bcf/d Tuesday and 4.3-4.6 Bcf/d over the weekend, according to data from NGI’s North American LNG Export Flow Tracker.
Overall, U.S. LNG feed gas volumes fell to about 12.7 Bcf/d Wednesday, as a rebound in Freeport LNG volumes partly offset the Sabine slowdown, NGI data show.
The disruptions to gas supply in South Louisiana have injected added volatility in benchmark Henry Hub cash prices into June, throwing off the usual correlations between Henry Hub’s cash prices and its prompt futures contract. The cash price traded across a range of 95.0 cents over the past four sessions, sinking below $2 for weekend flows before registering one of its biggest daily gains of the year on Monday (June 3).
Meanwhile, the July futures contract traded across a much narrower range of around 31 cents over the same period.
Keeping to the recent breakdown in correlations, NGI’s Henry Hub spot prices fell 35.5 cents to $2.215 alongside the jump in July futures Wednesday.
Lower 48 production for Wednesday fell by 0.7 Bcf/d day/day to 98.2 Bcf/d. Tuesday’s total was revised upward by 1.9 Bcf/d to 98.9 Bcf/d. Production levels have creeped up since May. The seven-day average of 99.4 Bcf/d compares with a 30-day average of 98.7 Bcf/d.
For Thursday’s U.S. Energy Information Administration (EIA) storage report covering the week ended May 31, analysts generally see the uptick in production levels translating into a heftier build than in recent weeks.
Injection estimates submitted to Reuters ranged from 85 Bcf to 95 Bcf and generated a median of 90 Bcf. A survey by Bloomberg netted a range of 85 Bcf to 97 Bcf and a median of 92 Bcf. NGI modeled a build of 97 Bcf. That compares with a five-year average increase of 103 Bcf and year-earlier build of 105 Bcf.
EIA reported an injection of 84 Bcf for the week ended May 24. It lifted storage levels to 2,795 Bcf, or 26% above the five-year average.
“While natural gas prices have regained some buoyancy this month and are holding above the $2.50/MMBtu level in the second half of May, we cannot forget that the market is still very well-supplied and storage inventories remain high after a mild winter,” RBC Capital Markets analyst Christopher Louney said.
On the demand side, LNG exports have picked up and warmer weather was lifting power loads, but there are signs that curtailed production volumes were returning, especially in the Appalachian Basin, according to Louney. Permian Basin volumes have picked up as well, he said.
Physical Prices
Natural gas prices in the spot market were mixed on Wednesday, with strong advances in West Texas offset by modest declines across a broad swath of regions.
A heat wave was forecast to expand across western states with highs in the 90s to 100s, or 20-30 degrees above average for this time of year, the National Weather Service said. Some of the worst heat risks Thursday were projected to be in West Texas along the border with Mexico, NWS data show.
Permian benchmark Waha jumped 31.0 cents day/day to average 66.5 cents, its highest level since late February. Meanwhile, prices in eastern and southern areas of Texas declined by single digits on average.
Gains elsewhere were mostly confined to the country’s midsection. The Midwest Regional Avg. rose 3.0 cents to $1.615.
NWS also put out excessive heat warnings for California’s Central Valley and portions of the Desert Southwest, including southeastern California, southern Nevada and western and southern Arizona.
Arizona and Nevada spot gas prices saw single-digit gains for Thursday flows. In California, prices were mixed. PG&E Citygate slipped 29.0 cents to $1.860, while SoCal Citygate gained 7.0 cents to $1.725.
Conditions over most of the Lower 48 were forecast to trend warmer than normal over the next two days, increasing “power burns to very strong levels for this early in the season at 37-38 Bcf/d,” NatGasWeather said.
Highs were expected to rise into the mid-80s over much of the Midwest, Great Lakes, Ohio Valley and East, according to NatGasWeather. California and Texas would see “impressive heat” with highs in the mid-90s to mid-100s, it said.
