Price bulls shook off a bearish government inventory report to send natural gas futures higher for a second day Thursday.
At A Glance:
- EIA prints 98 Bcf injection
- Output at 98.5 Bcf/d
- National Avg. cash down 4.0 cents
The July Nymex contract briefly sank to losses after the print but powered higher in the afternoon to settle at $2.821/MMBtu, up 6.4 cents day/day.
NGI’s Spot Gas National Avg., meanwhile, fell 4.0 cents to $1.740.
The latest U.S. Energy Information Administration (EIA) inventory report showed utilities injected 98 Bcf into storage for the week ended May 31. The result was slightly outside the range of polls ahead of the print, but below historical levels. Prior to the report, injection estimates submitted to major surveys ranged from 85 Bcf to 97 Bcf.
NGI modeled a build of 97 Bcf. EIA said the five-year average increase was 103 Bcf, and the year-ago number was 105 Bcf.
The storage miss came as weather forecasts doubled down on hotter weather returning in late June. July futures traded as high as $2.877 before the EIA report landed. After the print, they sank as low as $2.724.
The latest storage report increased Lower 48 inventories to 2,893 Bcf, putting the Lower 48’s surplus at 581 Bcf, or 25% above the historical average. That’s down from a 31% surplus in mid-May following three builds below average levels.
While the historical comparisons have been bullish, Thursday’s print was the second bearish miss to analyst expectations. That “indicates a fairly significant week-over-week weather-normalized loosening,” Wood Mackenzie analyst Eric McGuire said.
Accounting for degree days and normal seasonality, the EIA report showed market balances were looser by 2.5 Bcf/d week/week but tighter by 0.8 Bcf/d compared with the five-year average, according to McGuire. The biggest factor was an 8.5 Bcf increase in weekly production, offset by gains in Canadian imports (5 Bcf) and LNG exports (1.5 Bcf), he said.
Another factor was the three-day Memorial Day holiday, which depressed demand, according to NatGasWeather. It also pointed to “widespread power outages across Texas” during the reporting period.
“I’m a bit surprised” that the market did not write off the Thursday injection “as just holiday looseness,” a market participant said on online energy platform Enelyst.
Production was estimated at 98.5 Bcf/d on Thursday, down by 1 Bcf/d day/day and slightly below the prior 30-day average of 98.8 Bcf/d, according to Wood Mackenzie. Lower 48 output began to move higher in May, exceeding the century mark some days amid signs that EQT Corp., the largest U.S. natural gas producer, was adding back some curtailed production.
Analysts remained on the lookout for additional production coming back on to upset the market balances.
“If EQT and Chesapeake Energy Corp. were to wade back in with their shut-in production, that would most likely slow, if not derail the runaway train natural gas market,” Mizuho Securities USA LLC Energy Futures Director Robert Yawger said.
Demand Valley
On the demand side, U.S. liquefied natural gas feed gas volumes continued to trend lower after hitting a 12-week high of about 13.5 Bcf/d last Saturday. Feed gas flows for LNG exports fell day/day to 12.7 Bcf/d Thursday, according to data from NGI’s North American LNG Export Flow Tracker.
The slowdown was attributed in part to maintenance at Cheniere Energy Inc.’s Sabine Pass LNG export terminal in Louisiana. That slowdown has been partly offset by Freeport LNG recovering this week following an issue with Train 2 that temporarily slashed volumes.
This week’s strong cooling demand in western regions was expected to fade into the weekend as cooler weather systems tracked across the country, NatGasWeather said.
However, the American and European weather models continued to point to strong national demand returning in the third week of June from hot weather across much of the country, the forecaster said. “If a hotter-than-normal U.S. pattern holds throughout the second half of June, surpluses will decrease toward 450 Bcf,” the firm said.
Cash Prices Slide
Spot gas prices lost ground in most regions on Thursday, with the East leading the way down.
Algonquin Citygate in the Northeast fell 15.0 cents day/day to average $1.395. Transco Zone 5 in the Southeast shed 11.0 cents to $3.300. In Appalachia, Texas Eastern M-3, Delivery was down 12.0 cents to $1.335.
A cold front moving across the East Coast on Thursday was forecast to bring rain and cooler temperatures to the region, the National Weather Service (NWS) said. “Things mostly clear out across the East Coast on Friday, save for parts of northern and central New England where some light showers and an isolated thunderstorm will be possible.”
NWS data showed the hot weather easing through Saturday in the East but persisting in the Southwest and Texas. The forecast called for 50s to 70s in the Northeast and 60s to 90s across much of the Southeast over the weekend.
In California, most next-day gas prices fell as the heat was expected to ease on Friday to moderate levels. Malin fell 17.0 cents to $1.350.
In the Rockies, prices were mixed. Cheyenne Hub added 4.0 cents to $1.535. Northwest Sumas dropped 14.0 cents to $1.330.
Meanwhile, West Texas prices rose decisively for a fourth straight session. Coming off a 31.0-cent jump Wednesday, Waha added 12.5 cents to 79.0 cents Thursday.
The Permian Basin cash market benchmark traded in the negative for much of spring but began a recovery in late May, supported by the arrival of summer heat and less spring maintenance on pipelines.
