Natural gas futures, battered by hefty supply concerns most of this month, reversed course and powered forward on Thursday after an anemic government inventory report.
At A Glance:
- EIA prints 10 Bcf injection
- Production climbs to 101 Bcf/d
- Overall demand outlook mixed
After a 15.3-cent drop the prior session, the August Nymex gas futures contract on Thursday rallied 9.0 cents day/day and settled at $2.125/MMBtu.
NGI’s Spot Gas National Avg. shed 6.5 cents to $1.675.
Bearish factors such as weaker LNG volumes and solid production readings still loomed large. But a bullish storage print sent futures into rally mode after it fell short of both expectations and historical norms, easing concerns about the market’s lofty levels of supply.
The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 10 Bcf for the week ended July 12. That compared with a five-year average increase of 49 Bcf.
Prior to the EIA data crossing the wire, injection estimates submitted to major polls coalesced around the upper 20s Bcf. NGI modeled a 12 Bcf increase, setting the low end in surveys by both Reuters and Bloomberg.
Record or near-record temperatures canvassed most of the Lower 48 during the EIA period, more than offsetting the demand-destroying impacts of former Hurricane Beryl. The storm knocked out power for hundreds of thousands of Texans after making landfall in the Lone Star state. It also caused damage to export facilities and interrupted deliveries of liquefied natural gas. But it failed to trump heat elsewhere.
Wood Mackenzie analyst Eric McGuire said on the online energy platform Enelyst that the covered week featured “some of the highest sustained temps and highest power burns we have seen in the U.S.”
The latest increase lifted inventories to 3,209 Bcf, putting stocks above the year-earlier level of 2,959 Bcf and the five-year average of 2,744 Bcf.
The Midwest and East regions led with builds of 14 Bcf and 4 Bcf, respectively, according to EIA. The South Central draw of 10 Bcf, however, proved a major offset and included a 9 Bcf decrease in salt storage and 1 Bcf decline in nonsalt facilities. Mountain region stocks increased by just 3 Bcf, while Pacific inventories were flat.
McGuire, however, cautioned against assumptions of a sustained rally. Supplies in storage, while declining by 2 percentage points from the prior EIA period, still remained 17% above the five-year average.
“Despite high power burns” amid a hot summer, “the bears have only continued to have things go their way over the last several weeks,” McGuire said. “Production has jumped to as high as 103 Bcf/d” – from spring lows in the mid-90s Bcf – while “Beryl took a bite out of LNG exports, and the weather forecast finally moderated showing fewer cooling degree days (CDD) than normal for the first time in months.”
Bearish Factors
Indeed, while National Weather Service (NWS) forecasts call for a return to widespread heat by late July, they advertised below-average temperatures across swaths of the Midwest, Southern Plains and Northeast for the end of this week and the start of the next.
LNG demand, meanwhile, remained subdued Thursday at an estimated 10.7 Bcf/d – more than 1 Bcf/d off highs from earlier this month due to light volumes at Texas export facilities in Freeport and Corpus Christi.
“It simply seems that with summer now half over and the continued concerns regarding Freeport and Corpus Christi volumes lower, the focus remains on what the remaining hurricane season will have in store for LNG export volumes,” Snapper Creek Energy analyst Kyle Cooper told NGI.
McGuire echoed that thinking and said traders are looking ahead to the fall with expectations of storage holding at plump levels when weather demand fades.
“The hard thing with rallies is you need continued bullish information to sustain them, and we haven't had that,” McGuire said. “It is easy for the market to absorb higher production levels when power burns are through the roof, but it will be much more difficult to absorb these high levels when demand eases in the shoulder” season.
For the next EIA report, covering the week ending July 19, analysts are generally expecting a result roughly in line with historical averages.
Early 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.
Cash Prices
Spot gas prices varied by region, but drops in the Northeast led the national average lower.
Iroquois Zone 2 in New York lost 35.0 cents day/day to average $1.665. Algonquin Citygate near Boston dropped 35.0 cents to $1.550, while elsewhere in New England, PNGTS fell $1.515 to $2.215.
NWS data showed high temperatures in the 90s and 100s persisting across western and southern market through next week. Near all-time highs were projected for the final days of July and the start of next month.
However, regional reprieves were in store. Conditions already moderated in the Midwest by Thursday, and the same milder air was headed for stretches of the East Coast, including the densely populated and heavy gas-consuming Northeast. Cooling rains also were in store for parts of the nation’s midsection and in the East, according to NWS.
“The collapse of 51 CDDs below month-ago levels likely means any heat will have to roll forward into the near-term window before generating a substantial natural gas price reaction,” said EBW Analytics Group’s Eli Rubin, senior analyst. “Further, after the estimated 50 Bcf natural gas demand loss from Beryl, a recent bias may lead traders to overreact to any developing tropical threats.”
Still, with heat persisting in the West, SoCal Citygate gained 2.0 cents to $2.770, and SoCal Border Avg. climbed 17.5 cents to $2.595.
