June natural gas futures were set to open less than a penny higher at $2.967 as weather models retained a warm pattern for the next couple of weeks.
The latest weather model runs showed above-normal total degree days (TDDs) for most days through the third week of June, although some weather data could be potentially seen a touch cooler but still hot over the East for June 11-13 while very warm for most of the country June 14-18, according to NatGasWeather.
While this is not a bearish pattern, forecasters questioned whether the outlook was hot enough to take out $3.00. Traders didn’t appear to think so as the prompt-month contract stalled out at $2.98 in overnight trading.
Forecasters at Bespoke Weather Services, meanwhile, said the cooler trend in the East was indeed a bearish factor as a loss of about a dozen degree days is expected in the medium term. Although a period of significant heat in the long range is still expected, “we do look to transition to a pattern with cooler risks in the second half of June as a trough may replace the ridge across the center of the country,” Bespoke said early Monday.
Bigger picture, the hot weather is expected to lead to increased storage deficits, which NatGasWeather projected would expand by around 10-15 Bcf to near or more than 510 Bcf after this week’s Energy Information Administration storage report for the week ending June 1 is accounted for.
Last Thursday, EIA reported a net 96 Bcf injection 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 number came in lower than most estimates, giving further momentum to a natural gas futures market already higher on the hot weather trends.
Total working gas in underground storage as of May 25 stood at 1,725 Bcf, versus 2,513 Bcf a year ago and five-year average inventories of 2,225 Bcf, according to EIA. Week/week, the year-on-year storage deficit 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.
Early estimates for the coming storage report are clustered around a build of 88-98 Bcf versus the five-year average of a 104 Bcf build, NatGasWeather said. Thereafter, there’s enough heat east of the Rockies to keep demand near to slightly stronger than normal, aided by California temperatures also increasing above normal at times.
Finally, production remains strong and is expected to get stronger with the addition of a section of the Rover Pipeline. “Thus, the battle between bearish production versus bullish storage deficits should continue for many moons to come,” NatGasWeather said.
Genscape Inc. said production volumes during the weekend topped out at 78.59 Bcf/d and have remained below 79 Bcf/d after briefly touching that level for three days last week. “Production has not shown any notable sustained growth since mid-March,” Genscape senior natural gas analyst Rick Margolin said.
During the first quarter, production averaged about 78 MMcf/d of growth; since March 31, production has averaged -5 MMcf/d of contraction, although volumes did set another record high of 79.15 Bcf/d. Rover receipts ticked up about 0.45 Bcf/d upon authorization to bring more facilities online, and the pipeline is flowing about 2.1 Bcf/d. Those volumes, however, are mostly re-routed molecules, Genscape said.
As for Monday’s trading action, Bespoke said the market is already sitting back near resistance as a result of the loss of weather-driven demand and may not have the catalysts to break higher now. Cash prices, meanwhile, are likely to be a bit weaker with short-term forecasts cooling, as TDDs during the next week are expected to be near or just slightly above average.
“Hot long-range forecasts should limit the extent of any sell-off at least initially, but any additional rally should fail without significant hotter trends as we see $2.87-$2.90 as back in play again through the week,” Bespoke said.
July crude oil was set to open about 40 cents lower at around $65.41/bbl, while July RBOB gasoline was trading 2 cents lower at around $2.1211/gal.