July natural gas was set to open Friday near even at around $2.949/MMBtu following Thursday’s rally, which saw hotter weather trends and a bullish Energy Information Administration (EIA) storage report conjure thoughts of a return to $3.
Early morning model runs Thursday came in much hotter for the Week 3 outlook period, increasing estimated demand by 8.4 Bcf, EBW Analytics Group CEO Andy Weissman said. That was followed by an EIA report that came in well below estimates.
This series of events “could provide the most serious test yet of whether resistance can be broken,” Weissman said. “...After EIA reported a much lower-than-expected 96 Bcf injection, the July contract made a serious run at breaking resistance at $2.98.
“This effort ultimately failed,” he said. “The combination of hotter weather in Week 3 and a bullish storage miss reignited bullish sentiment. A renewed challenge to resistance at $2.98 is likely Friday or early next week. The most likely scenario is that resistance will hold at $3 or lower, but the possibility of a significant breakout cannot be ruled out.”
EIA reported a net 96 Bcf build into Lower 48 gas stocks for the week ending May 25, more than the 80 Bcf build recorded last year but less than the five-year average 97 Bcf injection. The year-on-year storage deficit week/week (w/w) shrank from 804 Bcf to 788 Bcf, while the year-on-five-year deficit increased slightly from 499 Bcf to 500 Bcf, EIA data show.
“Compared to degree days and normal seasonality a 96 Bcf build appears very slightly tight versus the prior five years by 0.2 Bcf/d,” Genscape Inc. analyst Margaret Jones told clients Friday. “Relative to the previous week, total power generation was up 2 average GWh though thermal generation dropped 1 average GWh.
“Nuclear generation was up almost 3 average GWh, while wind was down 1 average GWh and hydro was up 1 average GWh relative to the previous week,” Jones said. “Gas generation was close to flat w/w with a slight increase of 584 average GWh or an estimated plus-0.1 Bcf/d gas burn w/w.”
Analysts with Tudor, Pickering, Holt & Co. (TPH) noted Friday that warmer-than-normal temperatures have continued to prevent triple-digit storage injections “before new supply comes online.” However, cooling degree days (CDD) surpassing heating degree days (HDD) “at the end of May is consistent with norms.”
While liquefied natural gas exports “remain depressed at around 2.8 Bcf/d, Mexican exports migrated marginally higher w/w and U.S. natural gas production finally breached 80 Bcf/d,” the TPH analysts said. With the Rover Pipeline’s Mainline B cleared for service Thursday “the aforementioned supply ramp (in the Northeast) is imminent.”
Forecaster Radiant Solutions noted warmer changes to both its six- to 10-day and 11-15 day outlooks Friday. In the six- to 10-day, “changes are in the warmer direction from the Southwest through the Rockies, with any cool changes being small in Texas. Above normal temperatures are the favored solution from the West to Central, including much aboves averaging the period from the Interior West to the central/southern Plains.
“With a trough lingering along the East Coast, temperatures start the period in the below and much below normal categories in the Mid-Atlantic and Northeast, but moderation is forecast here in the mid-late period.”
Radiant said warmer adjustments in its latest 11-15 day outlook were “focused in the Midwest and East. The overall pattern is warmer than normal, with aboves encompassing a large part of the Lower 48 and including the Southwest, Interior West and Midwest. The East Coast is held closer to normal on the whole,” but with risks of trending warmer.
July crude oil was set to open about 66 cents lower at around $66.38/bbl, while July RBOB gasoline was trading fractionally lower at around $2.1553/gal.