With production strong and supplies in storage stout, a mixed demand outlook was not enough to further propel natural gas futures. Global information technology outages also created upheaval as trading commenced on Friday.
At A Glance:
- Production above 100 Bcf/d
- Near-term demand to ease
- Storage surplus remains high
The August Nymex gas futures mustered a 9.0-cent gain on Thursday, a rare advance this month powered by a bullish storage print. But the contract faltered early Friday and held in a narrow range of gains and losses in afternoon trading. It ultimately settled at $2.128/MMBtu, up three-tenths of a cent day/day.
NGI’s Spot Gas National Avg. fell 10.5 cents to $1.570.
Production hovered around 101 Bcf/d on Friday, according to Wood Mackenzie. Output, while choppy this summer, has mostly held above the century mark and far ahead of spring lows in the mid-90s Bcf/d.
That noted, Wood Mackenzie cautioned that it was “missing a lot of data” in its supply and demand report on Friday because of the outages. Cybersecurity company CrowdStrike said a software update inadvertently disrupted Microsoft systems, slowing everything from airline flights to digital banking to commodity trading platforms.
Grzegorz Drozdz, market analyst at financial services and tech firm Conotoxia Ltd., told NGI the incident pushed some traders across global markets to the sidelines at least part of Friday. “The incident has made us realize how dependent we are on a single technology company and how serious the consequences of a failure of such an entity on this scale can be,” he said.
NatGasWeather’s near-term outlook, meanwhile, called for “the lightest demand in more than a month” over the weekend and to start the coming trading week. It anticipated cooling rains and “very nice highs of 70s to 80s to track across the Midwest, Northeast and Southern Plains.”
Heat is expected to re-intensify and cover much of the Lower 48 later this month, but it may not arrive soon enough to drive the cooling demand needed to sop up excess supplies, the firm noted. It added that lofty early July temperatures led to a seasonally weak storage print on Thursday. Another such result could follow with the next government inventory report, helping to narrow a surplus of gas in storage that stood at 465 Bcf relative to the five-year average as of mid-July.
“The net result of recent and coming weather patterns is for hefty surpluses to gradually decrease towards 400 Bcf by mid-August,” NatGasWeather said. However, “this pace proved much too slow over the past month and a big reason why natural gas prices sold off massively” this month.
The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 10 Bcf into storage for the week ended July 12. The print proved low relative to expectations for a high 20s Bcf build found by major polls and the five-year average increase of 49 Bcf.
The Schork Report said the “meager” injection “was not even in the parking lot, let alone the ballpark,” of expectations.
Plump Supply
Still, the latest increase boosted inventories to 3,209 Bcf, keeping stockpiles far in excess of the five-year average of 2,744 Bcf.
For the EIA report covering the week ended July 19, preliminary injection estimates submitted to Reuters ranged from 15 Bcf to 66 Bcf, with an average of 24 Bcf. The estimates compare with an increase of 23 Bcf a year earlier and a five-year average build of 31 Bcf.
Given the bullish miss for the July 12 week, however, NatGasWeather anticipates estimates will get revised lower for the next report. “We project a range of 8-24 Bcf.”
LNG demand, meanwhile, gathered some strength late in the week as the Freeport liquefied natural gas terminal worked to restart one of its three trains that were idled by former Hurricane Beryl-induced damage earlier in July. Wood Mackenzie pegged LNG demand at 11.1 Bcf/d on Friday, up from recent lows close to 10 Bcf/d, but still off from summer peaks above 12 Bcf/d.
“There is, however, uncertainty about the timeline of the resumption of another two trains” at Freeport, said Rystad Energy analyst Wei Xiong. “The terminal has seen extensive outages in recent years, including a near 10-month shutdown from mid-2022 to the first quarter of 2023 due to an explosion” and “there have also been noticeable outages this year” amid maintenance events.
Looking ahead, Tudor, Pickering, Holt & Co. Justin Martin said that, with Freeport “only bringing one train back online” so far, “we are seeing similar trends continue” in terms of slower export activity along with some softening in weather demand.
Physical Prices
Cash prices for gas delivered through the weekend and Monday slipped across most of the Lower 48, with bears seizing upon forecasts for a stretch of mild weather.
Henry Hub shed 11.5 cents on Friday to average $1.885, while Florida Gas Zone 3 fell 10.5 cents to $2.385, and Michigan Consolidated lost 4.0 cents to $1.525.
Out West, SoCal Border Avg. dropped 25.0 cents to $2.345.
Hubs in the Pacific Northwest, where a weekend heat blast was forecast, proved an exception on Friday. Malin in Oregon, for example, jumped 21.5 cents to $2.295.
The lower prices in the nation’s midsection and portions of the South and East developed against the backdrop of expected seasonal to relatively mild conditions through the weekend and into the trading week ahead, as NatGasWeather noted.
Still, forecasts advertised more widespread heat returning by the middle of the coming week and enduring through the end of the month and into August, though with sporadic exceptions in the Midwest and parts of the South because of rainy conditions.
“The long-range weather data maintain a hotter than normal pattern over most of the U.S. for the end of July through the first half of August for strong to very strong national demand,” NatGasWeather said. It cautioned that tropical systems could track into the Lower 48, as Beryl did, and cause demand destruction.
Near term, forecasts for moderating conditions include Texas, with highs falling from the 100s in some markets to the 80s. “Widespread rain and thunderstorms will be the forecast for much of” the coming week in Greater Houston, “with locally heavy rain, some flooding, gusty winds at times, but also cooler temperatures,” said Space City Weather meteorologist Matt Lanza.
AccuWeather on Friday said the Atlantic was quiet to close out the week. But it said a tropical system could deliver heavy rains and possible power outages to Florida early in the coming week.
"While we do not expect this system to organize and strengthen, it will bring locally heavy rain to Florida from as early as Sunday to perhaps as long as Tuesday in some areas," AccuWeather meteorologist Alex DaSilva said.
