Natural gas futures fell for the fifth time in six sessions on Thursday, as traders looked past sweltering heat over large portions of the Lower 48 and fixated on stout supplies and tropical systems in the Gulf of Mexico (GOM).
At A Glance:
- Production hovers at 100 Bcf/d
- Heat dome covers Midwest, East
- Storage build near 69 Bcf expected
Coming off a 12.1-cent gain on Tuesday – followed by the Juneteenth holiday the next day – the July Nymex gas futures contract settled at $2.741/MMBtu, down 16.8 cents for the session.
NGI’s Spot Gas National Avg. shed 2.0 cents to $2.115, aided by price hikes in California.
Tropical Storm Alberto, the first named storm of the 2024 hurricane season, made landfall in northeastern Mexico on Thursday after weakening to a depression, according to the National Hurricane Center (NHC). As it moved inland throughout the day, it delivered cooler air to Texas and flooding rains, dampening demand in that major market.
This, to a degree, offset scorching heat across the Midwest and East that mustered robust demand throughout this week. Widespread highs in the 90s canvassed the key gas-consuming regions. Such conditions were projected to extend into the weekend, according to National Weather Service forecasts.
Traders gave “the cold shoulder to the heat dome terrorizing much of the U.S.,” said Mizuho Securities USA’s Robert Yawger, director of energy futures.
What’s more, NHC said it was tracking two more tropical disturbances – one in the southwestern GOM and another east of the northernmost Bahamas.
“The atmospheric conditions” for an active hurricane season have “largely been met,” Gelber & Associates analysts said. “Sea surface temperatures are historically hot and the Atlantic currently lacks wind shear – a factor that would otherwise serve to decrease hurricane events as lateral winds discourage storm formation.”
Meanwhile, natural gas production hovered around 100 Bcf/d on Thursday and was projected to rise another 1 Bcf/d over the following seven days, according to Wood Mackenzie. After scaling back in the spring and lowering output below the century mark for much of April and May, producers have begun to gradually ramp back up this month to align with summer demand.
Rystad Energy estimated that production would climb to 102.8 Bcf/d in July. “This is net bearish for prompt Henry Hub prices despite the recent warm weather,” Rystad analyst Lu Ming Pang said.
StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, echoed that thinking. The price weakness over recent sessions “is probably more of a supply side phenomenon as production comes back,” he told NGI. “But also from a technical standpoint, the market was a little overbought, and that accounts for some of this retrenchment.”
Still, as NatGasWeather noted Thursday, an “exceptionally hot versus normal pattern for much of the next 15 days,” as well as forecasts for above average Lower 48 temperatures for the summer overall, could sop up the extra supply and further curb a surfeit of natural gas in storage as the cooling season unfolds.
The next four to five government inventory reports “are expected to print smaller than normal builds to gradually reduce surpluses from 573 Bcf toward 450 Bcf, which is still quite hefty,” the firm said. “Essentially, it's going to take time for surpluses to dwindle down, but the expectation is they will be closer to 200-250 Bcf by mid to late fall.”
For the U.S. Energy Information Administration (EIA) storage print covering the week ended June 14, NGI modeled an increase of 69 Bcf. That compares with a five-year average increase of 83 Bcf.
The EIA report is scheduled for release on Friday, a day later than usual because of the Juneteenth holiday this week. Injection estimates submitted to Reuters for the June 14 week spanned 64 Bcf to 80 Bcf, with a median increase of 69 Bcf. Bloomberg’s poll found the same range and median.
EIA reported an injection of 74 Bcf for the first week of June. That print was shy of the five-year average of 83 Bcf and left inventories 24% above historic norms. Still, the surplus to the prior five years dwindled from around 40% in March.
Spot Gas Prices
Next-day cash prices were mixed on Thursday, with prices in the Northeast pulling back after massive run-ups earlier in the week amid the heat wave, but continued gains in the Midwest. Prices also rallied in the West.
After soaring nearly $2 to start the week, Algonquin Citygate near Boston shed $1.410 on Thursday to average $2.400.
Chicago Citygate, in contrast, rose 8.0 cents to $2.180 and Michigan Consolidated advanced 14.5 cents to $2.195.
The West Coast and portions of the Rockies, which had escaped the worst of the recent heat wave, were forecast to see temperatures jump into the 90s by the weekend. Prices responded, with SoCal Citygate up 22.5 cents to $1.775 and Northwest Sumas ahead 25.5 cents to $1.620.
NatGasWeather said both the European and American forecast models called for intense heat through the end of June and the start of next month. The firm said it was “still the hottest of the past 45 years” in terms of cooling degree days for this time of year.
“For the five-12-day forecast period, upper high pressure will expand to rule vast stretches with highs of 80s to lower 90s across the northern third of the U.S. and upper 80s to 100s over the southern two-thirds for strong to very strong demand,” the firm said. Additionally, “the long-range data maintains a hotter than normal U.S. pattern for the first half of July.”
Near term, the firm added Thursday, “temperatures will remain impressively hot across the East the next few days as unseasonably strong high pressure produces highs of upper 80s to mid-90s. So, while Texas has cooled into the 70s and 80s from tropical rains, the East has made up for it with near record heat.”
Weather aside, Gelber analysts said new infrastructure could generate mixed results for Texas prices. The 2.5 Bcf/d greenfield Matterhorn Express Pipeline, under development by MPLX LP and WhiteWater Midstream LLC, is projected to come online by July or August, they noted.
It is set to deliver gas from the Permian Basin eastward toward the Katy hub near Houston. It could unleash pent-up gas in West Texas and support prices there, but that supply could flow steadily to other parts of the state and put downward pressure on prices in East and South Texas.
“Given the vast supply of gas in the Permian, much of which goes unused because of a lack of outgoing pipelines, the completion of this project effectively represents a net addition of supply to the market and should loosen the supply/demand balance at locations serviced by the project,” the Gelber analysts said. “Katy prices may weaken as a result.” The hub on Thursday shed 1.0 cent to $2.210.
