Natural gas futures snapped a two-day rally with a sharp drop on Wednesday as markets shifted focus to mild weather and persistently strong production. The October Nymex gas futures contract settled at $2.733/MMBtu, down 11.5 cents day/day. November fell 10.5 cents to $2.921.
At A Glance:
- 60s Bcf injection projected
- Weather demand fades
- Output holds at 100 Bcf/d
NGI’s Spot Gas National Avg. shed 14.5 cents to $2.170.
Futures plunged after an announcement by NGPL (aka the Natural Gas Pipeline Co. of America) that it delayed maintenance previously planned for the fall, according to NatGasWeather.
NGPL posted to its electronic bulletin board Tuesday afternoon that a series of planned hydrotest dates on its Louisiana No. 2 Line were “postponed until further notice.”
Traders also took profits after the October contract jumped more than 20 cents over the week’s first two sessions.
Prices had rallied the prior two sessions on moderately lighter production levels, due largely to maintenance events in the Permian Basin. Traders also put an eye toward more disruptions in the weeks ahead because of the NGPL planned work. Output hovered just above 100 Bcf/d on Wednesday, in line with the start of the week and off about 2 Bcf/d from summer highs. But some of the repair work in the Permian was slated to culminate this week and upward revisions to production estimates were expected, according to Wood Mackenzie.
The weather outlook, meanwhile, maintained a decidedly bearish tilt heading into trading Wednesday. For the rest of this month and the start of October, benign temperatures are expected to permeate the majority of the Lower 48.
“Long-range weather maps maintain strong high pressure over most of the U.S. Oct. 1-10 for widespread above normal temperatures,” NatGasWeather said, noting this would translate into comfortable highs from the upper 50s in the far north to low 80s in southern markets “for light national demand.”
Additionally, as EBW Analytics Group noted, export volumes could soon come under heavy pressure amid an expected maintenance event in Maryland. The Cove Point LNG plant typically begins annual repair and upgrade work at this time of year. Bloomberg data showed a decline in volumes at the Cove Point liquefied natural gas facility on Wednesday, signaling a potential start to the seasonal maintenance.
Storage Expectations
The market will next focus on Thursday’s U.S. Energy Information Administration (EIA) storage print covering the week ended Sept. 15 and expectations for ensuing inventory reports for insight about potential oversupply ahead of winter.
Late summer heat last week overshadowed steady production and is widely expected to result in a bullish storage figure for the latest period.
NGI modeled an increase of 63 Bcf. That compares bullishly with a build of 99 Bcf a year earlier and a five-year average of 84 Bcf.
Estimates submitted to Reuters spanned injections of 58 Bcf to 85 Bcf, with a median of 66 Bcf. A Bloomberg poll produced a narrower range of estimates and median 66 Bcf increase.
EIA posted a 57 Bcf injection into Lower 48 storage for the week ended Sept. 8. That was well below the 76 Bcf five-year average injection and extended a trend of bullish prints over much of the summer, a development that helped to trim excess supply that emerged following a mild winter.
Ahead of Thursday’s data, inventories stood at 3,205 Bcf, or 203 Bcf higher than the five-year average. That was down from the prior week – 222 Bcf. The surplus has narrowed for each of the past 10 weekly storage reports, easing worries that storage would finish the injection season at record levels above 4 Tcf.
“Prospects for a 4-plus Tcf end of October inventory level have faded, but storage is still likely to end the season at elevated levels, which has kept prices in check,” BofA Securities strategist Francisco Blanch said. Inventories “are likely to reach 3.81 Tcf at the end of October, the highest level since 2020 (3.96 Tcf) and before that, 2016 (3.91 Tcf).”
Barring an exceptionally cold winter, “we expect inventories to exit winter 2023/24 at 1.77 Tcf, near five-year highs. If realized, this inventory path may cause Henry Hub gas to trade below our forecast of $3.50/MMBtu (4Q2023/1Q2024) and below the current forward curve,” Blanch added. “A mild winter would put inventories on a path to hit new seasonal record highs by March and could lead to a repeat of sub $2/MMBtu prices at times early next year as high end-of-winter inventories reignite the possibility of hitting storage constraints next summer.”
Spot Prices Slide
Next-day cash prices fell across the Lower 48 on Wednesday amid waning weather demand.
Chicago Citygate lost 12.5 cents day/day to average $2.240, while Houston Ship Channel fell 11.5 cents to $2.410.
Florida Gas Zone 3 dropped 21.5 cents to $2.850, and in the West, KRGT Del Pool shed 33.5 cents to $2.565.
NatGasWeather said the far southern U.S. would remain very warm through this week with highs of mid-80s to 90s. But the firm said the rest of the country would “be comfortable on a mix of weak weather systems and weak high pressure, with highs of upper 60s to 80s.
“A weak tropical system off the Carolinas will drift northward into the Northeast Thursday-Saturday, with heavy showers,” the forecaster added, dampening any late-season cooling demand there.
A little farther out, Maxar’s Weather Desk on Wednesday highlighted cooler trends for the northwestern and northeastern portions of the country during the six- to 10-day period.
The period “begins with a deep trough over the Gulf of Alaska,” Maxar said. “The trough is projected to progress inland, bringing the Pacific Northwest its first significant rain of the season. The forecast has trended cooler in association, as temperatures fall below normal in the second half. Cool changes are also along the East Coast, as high pressure settles southward from Canada.”
Highs in New York during this time frame would be in the upper 60s to low 70s, with lows in the upper 50s to low 60s, the forecaster said.
Wood Mackenzie noted that, on Tuesday, Permian Highway Pipeline (PHP) completed needed repairs and reinstated the pipeline’s full capacity. The firm had cautioned that if the PHP work proved protracted, it could create a supply glut and pressure West Texas prices. Waha on Wednesday lost 17.5 cents to $1.760. This followed a 25.5-cent gain the prior day.
