Natural gas futures returned to their winning ways Wednesday, supported by strong southern cooling demand and languid production.
At A Glance:
- Market sees low 90s Bcf injection
- Consumption varies by region
- Maintenance weighs on output
Coming off a 14.0-cent swoon on Tuesday – the first drop in six regular sessions – the July Nymex gas futures contract gained 10.5 cents day/day and settled at $2.597/MMBtu. August rose 10.7 cents on Wednesday and closed at $2.677.
NGI’s Spot Gas National Avg. shed 7.5 cents to $2.105 a day after jumping 20.5 cents.
Prompt month futures rallied 17% last week.
Bloomberg pegged production at 98.7 Bcf/d on Wednesday, up slightly from the start of the week on increases in the Haynesville Shale. However, after consistently exceeding the century mark in May, production estimates have held below the 100 Bcf/d level much of this month, limited by maintenance events that have curbed supplies in parts of the central and eastern United States.
The output restraints arrived as heat began to intensify in the South this month, signaling that what has proven an oversupplied market for much of 2023 could begin to tilt in the other direction this summer.
NatGasWeather noted on Wednesday – the first official day of summer – that forecasts have tended to seesaw this month when it comes to the timing of widespread cooling demand across the Lower 48, particularly in the Northeast. Still, forecasters said, “the coming pattern is still relatively bullish as national demand increases to stronger levels, aided by impressive and persistent heat over Texas and surrounding states, where highs will reach the 90s to 100s.”
The firm expects such conditions to spread and cover more of the country from late this week through at least early July.
What’s more, repair and upgrade work at LNG facilities on the Gulf Coast have over the past few weeks curbed liquefied natural gas demand. Export volumes have held near or below 12 Bcf/d in June, down from 2023 highs around 15 Bcf/d.
Marex North America LLC’s Steve Blair, senior account executive, told NGI that markets could be volatile this week and next as traders try to get a handle on when maintenance events will culminate and, when they do, if either production or LNG demand returns to the robust levels of earlier this year.
“Where this market is going to go will depend on whether we do get more cooling demand here in the U.S. and when production or LNG maintenance completes,” Blair said. “It’s potentially a situation where if they happen at the same time they could somewhat offset each other. So timing is a very important piece of the puzzle.”
That noted, Blair added, there is the possibility that output is down from a combination of maintenance events and a more concerted effort by producers to scale back in response to prices that are substantially lower than in 2022. Baker Hughes Co. reported rig count decreases over the past several weeks. When producers drop rigs, output tends to gradually follow the downward trajectory.
EBW Analytics Group echoed those insights.
“Crosscutting factors dominate the near-term outlook with rising temperatures (but a receding forecast), weak LNG (but potentially improving shortly), low production (but Haynesville readings higher), and still soft (but higher) spot pricing,” said EBW’s Eli Rubin, senior analyst. “While the medium-term outlook remains constructive, near-term volatility cannot be ruled out.”
Storage Estimates
The market will next focus on Thursday’s Energy Information Administration (EIA) inventory report.
NGI is modeling a 92 Bcf injection for the week ended June 16. If realized, such a build would outpace both the 86 Bcf five-year average injection and the 76 Bcf year-earlier increase.
Injection estimates submitted to Reuters for the covered period ranged from 79 Bcf to 102 Bcf and produced a median of 90 Bcf. Bloomberg’s poll found a narrower range and landed at a median of 92 Bcf.
EIA printed an injection of 84 Bcf for the week ended June 9. It boosted inventories to 2,634 Bcf and put stocks above the year-earlier level of 2,082 Bcf and the five-year average of 2,281 Bcf. However, the result fell short of market expectations for an injection in the upper 90s.
“While much of the drop observed in production is tied to maintenance events, suggesting those volumes will ultimately return, we believe the bullish storage surprise reported last week was at least partly driven by strength in demand, which we expect to continue to ultimately help U.S. gas prices hold more sustainably above that $2-2.50 range,” Goldman Sachs Group analysts said.
“In particular, power burn data continues to support our estimate that coal-to-gas substitution has been exceptionally strong,” the Goldman team added. “Further, while June is forecast to end cooler than average, the first few days of July currently visible in the two-week forecast suggest a warmer-than-average start to the month.”
Spot Prices Soften
Next-day cash markets lost momentum Wednesday after big gains a day earlier and last week amid the shift to summer-like weather.
Out West, El Paso S. Mainline/N. Baja fell 19.5 cents day/day to average $2.310, while in the nation’s midsection, Michigan Consolidated lost 9.0 cents to $2.170.
In the East, Florida Gas Zone 3 dropped 18.5 cents to $2.475, and Transco Zone 5 shed 16.5 cents to $2.330.
NatGasWeather said rain showers and comfortable highs of 60s to 80s will pepper much of the East this week and into late June, though stronger heat is expected early next month.
Elsewhere, “hot high pressure will rule the Southwest, Texas and Plains with highs of 90s to 100s for regionally very strong demand.” Those bullish conditions are expected to extend through the month and into July, the firm said.
Space City Weather meteorologist Eric Berger said Houston and other major markets in central and South Texas could see a brief reprieve from stifling heat on Thursday and Friday.
“But hot conditions return for the weekend, with highs of 100 degrees, as the dome of high pressure builds back over Texas in a big way,” Berger said.
For next week, he added, “not much to say, I'm afraid, other than that the heat remains in a pretty big way. There is some hint in the models that this pattern may finally break about 10 days from now, but that's far enough into the future that my confidence in that is pretty darn low.”
Prices retreated in Texas on Wednesday, however, with El Paso Permian down 22.5 cents to $2.100 and Katy off 6.0 cents to $2.280.
