Natural gas futures pushed higher for a second day Wednesday, supported by a production slowdown this week and bears scattering ahead of a possible light summer storage print on Thursday.
At A Glance:
- 30 Bcf injection expected
- Production slowdown continues
- Weather to moderate by weekend
The September Nymex contract rose 10.2 cents to settle at $2.112/MMBtu. It followed a nearly 7.0-cent move higher Tuesday.
NGI’s Spot Gas National Avg., meanwhile, was down 2.0 cents to $1.645, pulled lower by declines in California and West Texas.
Production fell to 100.5 Bcf/d on Wednesday, down about 0.7 Bcf/d from the prior day’s revised estimate, according to Wood Mackenzie. Pipeline maintenance work has slowed flow nominations by more than 2.6 Bcf/d since the weekend. Output bottomed out around 97 Bcf/d in May after producers curtailed activity in an attempt to balance an oversupplied market. Earlier in the year, production rose to all-time highs of about 107 Bcf/d.
On the demand side, natural gas-fired power generation has pushed to new record levels in August. It rose to a record high of 54.7 Bcf/d on Aug. 1, Wood Mackenzie data show. On Wednesday, the power burn pace was “strong” at 48.6 Bcf/d, analysts at the firm said.
“Gas-fired power has been incredibly strong,” East Daley Analytics’ Jack Weixel, senior director of Energy Analysis, said on Wednesday. “Every month this summer has beaten last summer's record so far. You can do that when gas is hovering around $2.”
On the weather front, forecasting models added around 4 Bcf of demand since Tuesday, according to NatGasWeather. However, a cooling trend was still intact. Demand was expected to ease to normal or below normal levels by the weekend, the firm said. Some of that lower demand was from Tropical Storm Debby, expected to “continue to bring bearish demand destruction to the Southeast due to cooler temperatures.”
Debby, downgraded from a Category 1 hurricane, was slowly moving up the coast on Wednesday, drenching South Carolina with rains and flooding, according to the National Hurricane Center (NHC). It was forecast to threaten more flooding in the Carolinas through Thursday and portions of the Mid-Atlantic and Northeast through Saturday, NHC said.
Demand from LNG exports appeared to show no significant impacts from the tropical storm. North American liquefied natural gas export terminals were scheduled to receive about 12.5 Bcf/d Wednesday, according to NGI’s U.S. LNG Export Flow Tracker.
The Elba Island LNG export terminal in Georgia maintained its usual pace this week. It was set to receive around 365 MMcf/d of feed gas on Wednesday, up from about 325 MMcf/d the day before.
Bullish Catalysts?
NatGasWeather noted that Tuesday’s rally for September futures came alongside a broader bounce in equity and commodity markets that had sold off in the previous session. The prompt month was also in “oversold conditions” after declining in nine out of the previous 10 sessions, the firm said.
EBW Analytics Group’s Eli Rubin, senior analyst, said the “mini-rally” in natural gas futures could probe higher based on short-term technical strength and declines in pipeline nominations.
Appalachian cash prices have fallen to a level that could lead to shut-ins, which “may reduce storage containment concerns to buoy gas prices,” he said.
The Texas Eastern M-2, 30 Receipt cash price – a key indicator for Appalachia that includes southwest Pennsylvania, West Virginia and Ohio – at $1.325 on Wednesday was down by 22% from a month earlier.
For Thursday’s U.S. Energy Information Administration (EIA) inventory report, a “smallish number” could force speculators to cover short positions, according to Mizuho Securities USA LLC’s Robert Yawger, director for Energy Futures. Buying futures to close short positions would help fuel a price move higher.
NGI modeled a 30 Bcf injection for Thursday’s report that covers the week ended Aug. 2. Build estimates submitted to Reuters ranged from 16 Bcf to 35 Bcf, with a median of 26 Bcf. That compares with an injection of 25 Bcf a year earlier and a five-year average build of 38 Bcf.
Year-low levels of wind generation contributed to a lean injection of 18 Bcf for the week ended July 26. The print lagged the five-year average build of 33 Bcf, but slightly exceeded the year-earlier 15 Bcf increase.
Inventories at 3,249 Bcf in the latest report stood 16% above the five-year average. That was down from a 39% surplus at the start of the injection season, according to EIA.
West Texas Lower
Physical markets traded mixed for Thursday delivery as modest gains in the eastern two-thirds of the Lower 48 contrasted with weightier declines in the West.
In California, SoCal Border Avg. dropped 37.0 cents day/day to average $2.115. In West Texas, El Paso Permian stayed below zero for a ninth day, shedding 28.0 cents to negative 42.5 cents.
In South Louisiana, benchmark Henry Hub saw the high end of its trading exceed $2 for the first time since July 26, averaging at $1.985, up 14.5 cents on the day.
Much of the rest of North America was sprinkled with single-digit gains. Chicago Citygate in the Midwest added 3.0 cents to $1.755, while Transco Zone 4 in the Southeast rose 8.0 cents to $2.225.
The National Weather Service (NWS) said an unseasonably cool air mass was forecast to descend across the Great Plains on Wednesday, bringing with it temperatures 15-25 degrees below normal. The moderating conditions would spread into the Ohio Valley and Northeast late in the week, NWS data show.
Meanwhile, a heat wave would hold its grip on the Southern Plains and Lower Mississippi Valley through Friday with highs in the 100s, NWS said.
