Natural gas futures were higher on Monday after the weekend models showed hot weather returning to the Lower 48 following the Labor Day holiday. After soaring to a $2.695 intraday high, the September Nymex gas futures contract settled at $2.579/MMBtu, up 3.9 cents from Friday’s settlement. October futures edged up only eight-tenths of a cent to $2.665.
At A Glance:
- Two storms in Atlantic
- Storage balances seen tightening
- SoCal cash jumps $5
Spot gas prices were higher across the board Monday, led by multi-dollar gains in Southern California. NGI’s Spot Gas National Avg. jumped 32.5 cents to $2.570.
Coming off a weekend in which Houston tied its record for hottest temperature ever recorded (the mercury reached 109), the latest long-range models said more heat was on the way. NatGasWeather said both the Global Forecast System and European data sets showed cooler weather for the coming week, but “impressively hot” conditions for days nine through 13.
While both models added several cooling degree days (CDD) to the 15-day outlook, the forecaster noted that based on summer trends to date, there is a decent risk some demand is given back as the forecast rolls forward. If the current outlook holds, however, balances would likely continue to tighten and set the storage trajectory on a path that would be even more supportive for prices.
The Energy Information Administration (EIA) last week sent shockwaves through the market when it said stocks for the week ending Aug. 18 increased by a net 18 Bcf. The injection was far below the lowest of estimates ahead of the EIA report and well below historical builds.
Traders are not discounting a revision in the next inventory report, and September futures ultimately saw little uplift from the storage data.
For the upcoming EIA report, early projections are wide ranging from 20 Bcf to 41 Bcf. NGI modeled a 32 Bcf build. This compares with last year’s 61 Bcf injection for the similar week and the 51 Bcf five-year average.
Total working gas in storage as of Aug. 18 stood at 3,083 Bcf, which is 513 Bcf above year-earlier levels and 268 Bcf above the five-year average.
NatGasWeather said the current weather outlook portends the surplus to the five-year average contracting to around 190 Bcf, with the potential to drop further if the second half of September maintains above-normal late-season heat.
However, there are several factors adding some wrinkles into the seemingly bullish backdrop.
Chief among those factors is Tropical Storm Idalia, which was forecast to become a major hurricane before making landfall along the Gulf Coast of Florida early Wednesday.
In a 1 p.m. CT notice on Monday, the National Hurricane Center said Idalia was strengthening as it neared the western tip of Cuba. Life-threatening storm surge and dangerous winds were becoming increasingly likely for portions of Florida.
“Although there is still some moderate northwesterly shear over the storm, intensification seems likely during the next 12-18 hours, and Idalia is forecast to become a hurricane during that time,” NHC forecasters said. “Steady to rapid intensification is predicted beginning Tuesday while Idalia traverses the warm waters of the eastern Gulf and the upper-level environment becomes more favorable.”
Houston forecaster Space City Weather said the one saving grace is that Idalia is likely to have only a little more than 24 hours over the open Gulf of Mexico waters to strengthen, and some modest wind shear may limit its ceiling. Storm surge and winds are the biggest issues for Florida residents, with the worst of Idalia likely to hit the Big Bend area.
Meanwhile, Hurricane Franklin was causing life-threatening surf and rip currents along the Southeastern U.S. coast. Franklin was a category 4 storm on Monday, with maximum sustained winds near 145 mph and higher gusts. Additional strengthening was possible late Monday, but gradual weakening was expected to begin later Tuesday. The storm was forecast to pass well to the west of Bermuda on Wednesday.
Last year’s Hurricane Ian significantly curbed Southeast demand as about one million Florida customers lost power. North and South Carolina, Virginia and Georgia also were impacted by the category 4 storm.
The near-term outlook also could face bearish headwinds from September Nymex options expiration and final settlement. A wide range of near-term scenarios is possible, although weakness is ultimately favored, according to EBW Analytics Group.
The firm noted that the expiring front-month contract has lost ground in 10 of the past 12 months for an average 16.9-cent decline. What’s more, the only two contracts posting gains into expiration over the past year were February and March – likely in part because of producers less willing to sell forward production and take steep financial risks in the event of freeze-offs.
“The huge 20-CDD gain since Friday may test this recurring pattern, with the September contract already jumping 11.6 cents higher last night,” EBW senior energy analyst Eli Rubin said. “Still, falling trading liquidity into expiration, together with a rapidly strengthening Idalia in the Gulf, may further boost price volatility risks through Tuesday’s September final settlement.”
Dangerous Heat
Spot gas prices strengthened across the country but markets in Southern California, the Desert Southwest and up into the Rockies ran away with the largest gains.
The National Weather Service said strong high pressure would send temperatures soaring to as much as 15 degrees above normal this week. Lower desert highs could hit 120 degrees on Tuesday, with little to no relief expected overnight.
SoCal Citygate spot gas prices surged as high as $11.000 on Monday before averaging $10.015, up $5.415 from Friday, for Tuesday’s gas day. In Northern California, PG&E Citygate was up 88.5 cents to $5.260.
In the Desert Southwest, KRGT Del Pool cash was up 96.5 cents to average $4.430, while in the Rockies, Opal shot up 77.5 cents to $3.475.
Outside of the western United States, price increases ranged mostly from the teens to 40.0 cents. Henry Hub picked up 12.0 cents to average $2.585, as did Transco Zone 5, which averaged $2.985.In Appalachia, Tennessee Zn 4 Marcellus next-day gas was up 35.5 cents to $1.165, while Transco Zone 6 NY was up 37.5 cents to $1.310.
