Natural gas futures nosedived on Wednesday despite waning production levels and expectations for a seasonally small increase in underground inventories.
At A Glance:
- Production below 100 Bcf/d
- Weak storage build expected
- West cooling demand endures
Coming off a 3.0-cent gain the prior session, the August Nymex gas futures contract on Wednesday dropped 15.3 cents day/day and closed at $2.035/MMBtu. The prompt month was down for the week so far and gave up ground over each of the past two weeks.
NGI’s Spot Gas National Avg. fell 23.5 cents to $1.740.
Some traders focused on signs of regionally moderating weather and still hefty overall supplies. But Carley Garner, senior broker and analyst at DeCarley Trading, told NGI that the downward slope of prices through most of July largely reflected an unwinding of an overcooked rally last month that brought futures to the $3.00 level.
“Unlike crude oil or gold speculators, natural gas speculators are perpetually short the market. The question is generally not if speculators are short natural gas futures, but how short they are,” Garner said. “The recent rally to $3.00 was largely made possible by short squeezing, and now we are likely seeing those bears aggressively put their positions back on. Sometimes, market positioning and trader motivation trump fundamentals; this is probably one of those times.”
However, Garner cited the Relative Strength Index (RSI), a momentum indicator that gauges price changes to identify overbought or oversold conditions, as reason for bulls to soon perk up.
“We are seeing a divergence between the RSI and the underlying commodity price. As gas is making new lows, the RSI oscillator is not following. This is generally a sign of imminent trend exhaustion and a nearing price reversal,” Garner said. “I doubt the August contract trades much under $2.00.”
As for fundamentals, production dipped below the century mark in Wood Mackenzie’s Wednesday estimate, checking in at 99.4 Bcf/d. That was down from recent highs around 102.5 Bcf/d.
“Declines are concentrated in Texas and Pennsylvania,” Wood Mackenzie analyst Emma Weng said. There were no scheduled maintenance events in Pennsylvania, Weng said, and upward revisions were expected. However, an El Paso Natural Gas Co. LLC project on Line 1300 that began Tuesday and was projected to continue into Thursday restricted Permian Basin gas flows.
NatGasWeather said national cooling demand remained robust Wednesday. But forecasts called for average temperatures and rains over stretches of the nation’s midsection through the weekend and into the week ahead, adding to bullish sentiment.
Still, the firm added, “much of the weather data for July 23-31 favors high pressure returning over most of the U.S. with very warm to hot conditions.
“The long-range weather data maintain a hotter than normal pattern over most of the U.S.” for “the first 10 days of August for strong to very strong national demand,” the firm added.
Export Picture
LNG demand, meanwhile, held at relatively light levels on Wednesday – around 10. 6 Bcf/d, according to Wood Mackenzie – as the aftershocks of the former Hurricane Beryl continued to reverberate. Specifically, the Freeport liquefied natural gas facility in Texas, damaged by the storm, continued to work on repairs as it prepared to restart the first of three trains pushed offline.
LNG demand had regulatory topped 11 Bcf/d – and approached 12 Bcf/d – prior to Beryl’s landfall in Texas early last week, RBN Energy LLC analyst Kristen Hays noted.
“Twenty LNG cargoes left U.S. terminals last week, five fewer than the prior week, reflecting Freeport LNG’s shutdown,” she said.
However, Freeport said it expects to have its first train back online this week and the other two would soon follow, pointing to a rebound in the coming days.
“The technically oversold front-month is primed for a rebound,” EBW Analytics Group’s Eli Rubin, senior analysts, said Wednesday. “However, the inability to post a meaningful recovery rally even as Freeport LNG shows signs of life is worrisome, with the September contract to become the front-month in just 10 days.”
Bulls do have in their favor estimates that showed analysts expecting a seasonally weak print with Thursday’s U.S. Energy Information Administration (EIA) storage report.
NGI modeled a 12 Bcf increase for the week ended July 12. That compares with a five-year average increase of 49 Bcf.
Injection estimates submitted to Reuters ranged from 12 Bcf to 48 Bcf, with a median of 28 Bcf. Bloomberg’s survey as of Wednesday spanned 12 Bcf to 32 Bcf and landed at a median of 27 Bcf.
EIA posted a build of 65 Bcf for the week ended July 5. It was well above the five-year average 57 Bcf increase and put underground stockpiles at 3,199 Bcf, 19% above the average of the prior five years.
Cash Prices
Spot prices slipped across a majority of regions amid signs of softer natural gas consumption in coming days.
NatGasWeather said “strong high pressure” spanned the western, southern and eastern Lower 48 on Wednesday, with highs of 90s-100s “for strong demand.”
However, it noted cooler highs in the 70s to lower 80s across much of the Midwest. Moderate conditions were expected to extend to the Southern Plains and the Northeast later in the week, the firm said. It said these regions could also see cooling rains and comfortable air next week. But the rest of the country “will be very warm to hot with highs of upper-80s to 100s, hottest California to West Texas.”
Against that backdrop, Chicago Citygate shed 13.0 cents day/day to average $1.640, while Michigan Consolidated fell 13.5 cents to $1.550.
In the East, Cove Point in Maryland lost 25.0 cents to $1.500, and Algonquin Citygate near Boston dropped $2.130 to $1.900.
Alex Sosnowski, AccuWeather senior meteorologist, noted that vast swaths of the West have baked under extreme heat for much of July. He said this would likely continue through the month and expand to the Pacific Northwest this weekend, delivering “record-challenging heat.” This could include highs in the 90s in Portland, OR.
“Intense heat will make its presence known in the Northwest,” Sosnowski said.
The Malin hub in Oregon on Wednesday rose 9.5 cents to $2.045, while Northwest Sumas gained 9.0 to $1.870.
