Natural gas futures were bound by a narrow range of gains and losses Friday. This capped a topsy-turvy trading week that featured falling production and an early rally, but also rapidly waning weather demand and choppy LNG activity that later sapped sentiment.
At A Glance:
- Mild weather ahead
- Output near 99 Bcf/d
- Storage surplus holds
After a 12.1-cent drop the prior session and gains earlier in the week, the May Nymex gas futures contract on Friday ultimately settled at $1.770/MMBtu, up six-tenths of a cent day/day.
NGI’s Spot Gas National Avg. on Friday dropped 23.0 cents to 94.5 cents. Prices fell across the Lower 48 amid widespread spring weather. Prolonged price pain in oversupplied West Texas compounded matters.
Production held lower to finish the week, hovering around 99 Bcf/d and off nearly 8 Bcf/d from record levels hit early this year, according to Wood Mackenzie estimates. Major producers scaled back toward the end of a mild winter to balance an oversupplied market.
But the output figure was up about 1 Bcf/d on Friday from lower readings early in the week that were later revised upward. This developed as National Weather Service forecasts pointed to an unseasonably warm weekend and benign conditions deep into the second half of April. The outlook called for widespread highs ranging from the 50s to low 80s – too warm to keep furnaces running yet not hot enough to galvanize widespread air conditioning to cool homes.
Mobius Risk Group analysts said the “remarkable stretch of mild weather” from Friday through Monday would, if forecasts prove accurate, rank as the eighth-warmest stretch for the comparable dates in records going back to 1950.
While some cooler air could spill into the Lower 48 at points this month, the Mobius team noted, comfortable temperatures were expected to permeate most of the country through the week ahead and into the following week.
“A 60-75 Bcf loss of weather-related demand” in that period “acts as an anchor for the market,” the Mobius analysts said.
The latest weather forecasts followed Thursday’s U.S. Energy Information Administration (EIA) storage report. The agency printed an injection of 24 Bcf natural gas into storage for the week ended April 5. That matched the five-year average but exceeded analysts’ expectations for a build in the low teens. NGI modeled a 14 Bcf injection.
The increase for the latest EIA period boosted inventories to 2,283 Bcf and put underground supplies 38% above the five-year average. The print “gave the market approximately 1.5 Bcf/d more supply, or less demand, to contemplate,” the Mobius analysts said.
The lighter production readings along with bouts of chilly air early in the past week could result in favorable inventory data, from a price bull’s perspective, with the next EIA report. Early estimates for the week ended April 12 submitted to Reuters ranged from injections of 25 Bcf to 65 Bcf, with an average increase of 41 Bcf. That compares with a five-year average injection of 61 Bcf.
However, with benign weather ahead and uneven demand for liquefied natural gas, ensuing EIA storage reports could exceed historical norms and maintain lofty surpluses, analysts said.
Calls for gas from Gulf Coast LNG export facilities seesawed over the past week amid fits and starts during maintenance work. This notably included a bump up in demand from Freeport LNG early in the week and then a drop later in the period as the facility continued with repair and upgrade work that started last month and is not projected to culminate until May, as Tudor, Pickering, Holt & Co. analyst Matt Portillo noted.
“The enormity of the over-supply challenge may only become clear in coming weeks as the surplus of inventories overcomes production declines” because of mild weather, said EBW Analytics Group’s Eli Rubin, senior analyst. Ongoing “price weakness at the front of the Nymex curve this spring is the most likely scenario to keep price-induced demand elevated and supply lower.”
Cash Prices Cascade
Spot gas prices nosedived on Friday, with excess supply of Permian Basin associated gas extending a steep, weeks-long slump. Waha prices in West Texas were stuck in the red Friday, as they were all week. Prices at the region’s benchmark hub plummeted $1.120 to negative $3.040
Ongoing maintenance work on top of already limited takeaway capacity “is squeezing regional outlets from both ends,” Rubin said.
Overall, NatGasWeather said that, following a bearish weekend and start to the coming trading week, temperatures were projected to remain “quite comfortable” over the northern half of the country through next week, with highs in the 50s and 60s. The firm expects “very nice to warm” conditions throughout most of the South at that time.
For the following week, some cooler air could descend into northern areas, yet high temperatures could still range from the 40s to the 60s, minimizing energy needs. Southern markets were expected to see highs from the 60s to 80s, though some portions of the Southwest could experience highs in the 90s and spark regional pockets of cooling demand.
Against that backdrop, prices retreated in every region of the country on Friday. Leading decliners included Northwest Sumas, off 55.5 cents to 69.5 cents, and Houston Ship Channel, down 66.0 cents to 38.5 cents.
Chicago Citygate shed 22.0 cents to $1.155.
Maxar’s Weather Desk on Friday noted some cooler trends in the East for next week.
“Low pressure tracking through the eastern half has been a point of uncertainty in the forecast over the past several days, and it is behind larger than usual changes” to the latest projections for this period, Maxar said. Friday’s models were “faster to progress the feature eastward while pulling stronger high pressure southward from Canada in its wake.”
As a result, portions of the East could see “below and much below normal readings” late next week, the forecaster said, though at this point in the year, cool conditions tend to result in only modest heating demand. Boston, for example, is still projected to see highs in the 50s even during the coldest stretch next week.
Algonquin Citygate near Boston fell 29.0 cents to $1.220 on Friday.
