Natural gas futures on Friday floundered for the fourth time in as many sessions, as supplies in storage remained on course to culminate the injection season at historically robust levels in spite of a hot summer.
At A Glance:
- Heat poised to intensify
- Production holds strong
- August expiration looms
Coming off a 7.6-cent loss the prior session, the August Nymex gas futures contract shed 3.5 cents day/day and settled at $2.006/MMBtu to finish the week.
The physical market followed suit and fell for a third consecutive session. NGI’s Spot Gas National Avg. dropped 19.5 cents to $1.550.
The August futures contract is set to roll off the books after the close on Monday. Trading is often volatile in the final days ahead of expiration.
The prompt month trended lower amid continued strong production levels and high inventories of gas stored underground for the coming winter.
Wood Mackenzie estimated production at 102.3 Bcf/d on Friday, in line with the seven-day average and up modestly from the 30-day average. The 102 Bcf/d level marks a substantial climb from spring lows in the mid-90s Bcf/d.
Analysts at Wood Mackenzie estimated total demand at 103.3 Bcf/d on Friday, supported by 7.6 Bcf/d of pipeline exports to Mexico and 12.4 Bcf/d of LNG send-outs. The latter was up from recent lows near 10 Bcf/d that followed damage to a liquefied natural gas facility after an early July hurricane hammered the Gulf Coast.
NatGasWeather noted that, following a scorching first half of July, sections of the central and eastern portions of the country saw seasonal conditions over the past week, modestly curbing cooling demand. However, the firm said Friday updated weather data “held an impressively hot U.S pattern” for the week ahead and the first half of August.
So far this cooling season, though, “exceptionally warm temperatures” have not “assuaged end-of-season storage concerns,” BofA Global Research analysts said in a report.
Mizuho Securities USA analyst Nitin Kumar echoed that thinking and said futures stalled as a result. The intersection of robust supply and stronger cooling demand ahead leaves him with “a neutral view on short-term natural gas prices.”
Storage Views
A bearish U.S. Energy Information Administration (EIA) storage print, which sank futures Thursday, continued to weigh on sentiment during the trading week’s final session.
EIA printed an injection of 22 Bcf natural gas into storage for the week ended July 19. The result surpassed analysts’ expectations for a build around 11-15 Bcf, according to major polls.
The build boosted inventories to 3,231 Bcf, putting stocks far above the five-year average of 2,775 Bcf.
Looking ahead to the next EIA print, covering the week ended July 26, preliminary estimates submitted to Reuters ranged from additions of 15 Bcf to 51 Bcf, with an average increase of 39 Bcf.
The estimates compared with a five-year average increase of 33 Bcf and reflected the steady production volumes and seasonally benign central and eastern weather of late July.
Previewing the next print, Tudor, Pickering, Holt & Co. analyst Justin Martin said “concerns remain with supply hovering at 102 Bcf/d.”
Additionally, EBW Analytics Group’s Eli Rubin, senior analyst, said that more often than not this year, trader positioning around front month expiration has proven bearish. That, coupled with the high inventories, “suggest more downside.”
Still, Rubin added, daily weather-driven demand could add 4.0 Bcf/d by the end of next week and, in concert with stronger LNG consumption, there is “moderate upside” for the September contract after it becomes the front month.
Cash Prices
Spot gas traded Friday for delivery over the weekend and Monday lost ground across most of the Lower 48, with West Texas proving a particular weak spot.
A spate of relatively small but cumulatively disruptive maintenance events over the past week in the Permian Basin backed up supplies and flipped prices in West Texas into negative territory. It has become a common occurrence this year in the region, where an abundance of associated gas often outstrips takeaway capacity.
Additionally, the U.S. Geological Survey on Friday reported a 5.1-magnitude earthquake in West Texas. Friday’s quake was not immediately linked to pipeline issues, but it occurred only a few miles from a 4.9-magnitude rumbling earlier in the week that interrupted travel.
Permian Basin Waha dropped $1.540 on Friday to average negative $1.210.
Elsewhere, notable decliners included Florida Gas Zone 3, down 18.0 cents to $2.430, and El Paso San Juan, off 54.0 cents to $1.710.
NatGasWeather said Friday that thunderstorms and rainy conditions would track through the eastern third of the Lower 48 as well as Texas over the weekend to keep high temperatures at seasonal levels. However, parts of the Southeast, central and western United States were forecast to bake under highs in the 90s and 100s.
Then, in the week ahead, the firm said, “most of the U.S. will warm above normal with highs of upper 80s to 100s for strong demand.”
Looking at the first third of August, the forecaster added, “hot upper high pressure will rule most of the U.S.,” extending highs from near 90 to well into the triple digits for “very strong national demand.” The hottest conditions were expected in the deserts of California and the Southwest.
Prices were nevertheless under pressure Friday in the West. SoCal Citygate slumped 52.0 cents to $2.390, and KRGT Del Pool in Nevada fell 39.0 cents to $2.335.
On the tropical storm front, AccuWeather meteorologists said conditions over the past week were calm. However, the firm’s forecast on Friday noted that “an area of low pressure recently pushed off the coast of Africa and into the eastern tropical Atlantic…There is the potential for development” and “a surge of tropical activity in August.”
The firm noted that record warm ocean temperatures created conditions ripe for an active hurricane season, particularly from August into October.
"We are expecting a significant uptick in Atlantic tropical activity beginning in August, regardless of whether the wave near Africa develops later on or not," AccuWeather’s lead hurricane forecaster Alex DaSilva said.
This would follow the former Hurricane Beryl, which made landfall along the Texas coast in early July, causing disruptions at export facilities and dampening LNG demand for weeks.
