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Day After Storage-Led Rally, Natural Gas Futures Slide; Spot Prices Mixed

  • June settles 1.2 cents lower at $2.847
  • Market appears “increasingly primed to rally on sustained heat,” says Bespoke
  • 100 Bcf-plus builds “looking less likely” over next few weeks: NatGasWeather
  • Production fails to surpass 78 Bcf/d for fourth straight day, says Genscape

Natural gas futures inched lower Friday after trading in a fairly narrow range, with the market continuing to piece together a storage picture that could see deficits persist deep into the summer. In the spot market, prices fell across markets in the West as Midwest points strengthened following recent declines; the NGI National Spot Gas Average slipped a penny to $2.33/MMBtu.

The June contract slid 1.2 cents to settle at $2.847 after trading as high as $2.870 and as low as $2.840. July settled 0.7 cents lower at $2.879.

“Yet again we saw another slow Friday trading day” after a larger trading range on Thursday when the Energy Information Administration (EIA) issued its weekly storage report, Bespoke Weather Services said. Like the Friday before (May 11), “the strip was more supportive, however, we also saw weather flip significantly more bearish through the day,” on bearish Global Ensemble Forecast System guidance “pulling prices off the $2.87 resistance level we had been watching, and then European guidance furthering these long-range cool trends that we expect to limit cooling demand into early June.”

The market appears “increasingly primed to rally on sustained heat,” which could arrive by mid-June. Although the potential for further gas-weighted degree day declines presents downside risk over the week ahead, with the market potentially testing $2.80 or even $2.75, according to Bespoke.

“From there, downside remains generally limited” particularly as the next week or two “we would expect mid-June heat risks to become more apparent,” the firm said. “Confidence is limited by this supportive strip still, and there certainly are bullish risks, but given softer daily burns and expectations of further cooling demand losses it would appear risk is skewed modestly lower” to start the upcoming week.

NatGasWeather.com said it expects most of the country to remain warm enough through early June to result in “upcoming builds being near five-year averages, essentially stalling deficits and failing to reduce them much over the next three to four weeks.

“We see this providing a bullish background state as the markets were expecting several builds to print greater than 100 Bcf, and that’s looking less likely as the next several come in closer to 80s to 90s Bcf,” keeping deficits close to minus 500 Bcf through the end of the month, NatGasWeather said. “So while production has set fresh records just about every month this year, it’s still not enough to meaningfully reduce deficits this shoulder season, at least not yet.”

EIA on Thursday reported a 106 Bcf injection into Lower 48 gas stocks for the week ending May 11, close to consensus estimates and larger than both last year’s 64 Bcf build and the five-year average 87 Bcf injection.

Analysts with Tudor, Pickering, Holt & Co. (TPH) said based on total degree days for the period the 106 Bcf build indicates the market is oversupplied on a weather-adjusted basis.

“Warmer-than-normal temperatures continue to be expected across the lower U.S.” as cooling demand appears likely to overtake heating demand, according to the TPH team. “If proven accurate, warm weather will become a boon for pricing as we enter the summer cooling season. Nationally, U.S. dry production failed to break past the 80 Bcf/d barrier, Mexican exports remain at around 4.3 Bcf/d” and liquefied natural gas exports were flat week/week (w/w) at about 3.4 Bcf/d.

The 106 Bcf build is tighter versus the previous five years by 1.5 Bcf/d based on degree days and normal seasonality, according to Genscape Inc. analyst Rick Margolin said.

“Relative to the previous week, total power generation was up 17 average GWh. Total renewable generation was down 7 average GWh as wind was down around 9 average GWh w/w and nuclear generation up by 2 average GWh,” Margolin said. “Total thermal generation was up 24 average GWh w/w. Gas generation was up around 16 average GWh for an increase of 3.2 Bcf/d gas burn.”

Meanwhile, production increased by close to 1 Bcf/d day/day (d/d) Friday but couldn’t crack the 78 Bcf/d mark for the fourth straight day, according to Margolin.

“At the same time, demand is posting a nearly equal 0.9 Bcf/d d/d retreat ahead of the weekend,” he said. “The main driver is the Midwest, where nominated demand is down nearly 1 Bcf/d with ANR, NGPL, NNG and Panhandle all posting 0.2 Bcf/d d/d drops with temperatures coming back into seasonal norms.”

Midwest spot prices finished higher Friday after posting broad declines the past two trading days. Chicago Citygate gained back 9 cents to average $2.46 after giving up 11 cents in trading Thursday.

“Weather systems will bring areas of showers across the Rockies and Plains the next few days as well as cooler temperatures,” NatGasWeather said in its one- to seven-day outlook Friday. “It will be a touch cool over the Northeast with upper 50s and 60s, while wet over the Mid-Atlantic Coast and Southeast, but still rather warm with 70s and 80s.

“The Southwest and Texas will be very warm to hot with upper 80s and 90s for regionally stronger demand,” the firm said. “Next week will be warmer than normal across most of the country but still with areas of showers, especially over the West and Southeast.”

Prices were mixed in the Northeast and Appalachia heading into the weekend, with some points continuing a volatile pattern that has coincided with shoulder season maintenance in the region.

Transco Zone 6 New York shed 15 cents to average $2.46 after jumping 29 cents Thursday. Millennium East Pool dove 72 cents to $1.02 after adding 20 cents Thursday.

In the West, the import- and storage-constrained SoCal Citygate recorded another Friday decline ahead of a weekend expected to bring moderate demand for utility Southern California Gas (SoCalGas). SoCal Citygate plummeted 63 cents to average $2.06, while SoCal Border Average shed 10 cents to $1.82.

SoCalGas was forecasting total system demand of right around 2 Bcf/d over the weekend, down slightly from actual demand of about 2.1 Bcf/d Thursday. The utility was forecasting weighted average temperatures in the mid-60s over the weekend.

Further upstream in the Rockies, prices at most points weakened by a nickel to a dime. Opal dropped 6 cents to $1.71, while Transwestern San Juan fell 15 cents to $1.64.

“Planned maintenance on Northwest Pipeline (NWPL) beginning Monday and lasting through Saturday (May 26) could disrupt over 150 MMcf/d of San Juan Basin outflows,” Genscape analyst Joe Bernardi told clients Friday. “NWPL will perform a hydrotest between its Moab and Cisco compressor stations in southeastern Utah, which will require these points to go to zero flow.

“These points typically bring San Juan molecules north, with an average throughput of 179 MMcf/d over the past month,” Bernardi said. “There has not been an equivalent NWPL maintenance event within recent years, but reroutes could occur onto Transcolorado, El Paso or Transwestern.”

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