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Heat Drives Spot Prices Higher as Natural Gas Futures Slump

Natural gas futures retreated Monday as forecasts failed to offer up enough heat to impress a market mindful of surging production. Hot temperatures to start the week drove up spot prices along the East Coast and in Southern California; the NGI National Spot Gas Average jumped 14 cents to $2.74/MMBtu.

The August contract settled at $2.828 Monday, down 3.0 cents after trading as high as $2.865 and as low as $2.817. September slid 3.0 cents to settle at $2.796.

Prices tested the $2.80-2.82 support area Monday, a level that should hold for now barring a major change to fundamentals, according to Bespoke Weather Services.

“The August natural gas contract gapped down last evening, recovering weakly” on Monday morning “off stronger cash prices before continually elevated production hit the entire strip lower again…” Even hotter trends at the end of the Global Ensemble Forecast System guidance “could not move prices much off support,” Bespoke said.

“We did see the winter strip firm up into the settle even as the fall strip weakened further, seeming to indicate that at least in the short-term it may be difficult to break below the $2.80-2.82 support level without further bearish fundamental trends” either from weakening weather-related demand, further production growth or looser power burns, according to Bespoke. “As of now, we are not expecting either of those three at least in the very short-term, and accordingly would look for support to hold” into Tuesday’s session.

NatGasWeather attributed Monday’s sell-off at least partially to recent guidance failing to offer enough heat in the Northeast for the second half of July.

“It’s still a hot overall U.S. pattern with upper high pressure dominating large stretches of the country, just not impressively so with the Great Lakes and Northeast only experiencing bouts of heat, but not sustained,” the firm said. “The latest midday data maintained a weather system arriving into the northeastern U.S. Thursday and Friday, cooling hot early week conditions.

“Although, upper high pressure is expected to spring back across the U.S. this weekend for a swing back to stronger demand as most of the country returns to highs of upper 80s to 100s,” NatGasWeather said. “But where the data still isn’t hot enough is across the Midwest and Northeast during the middle and end of next week as weather systems with showers and cooling ride around the northern periphery of the hot ridge.”

On the tropical weather front, Tropical Storm Chris, hovering offshore about 215 miles south-southeast of Cape Hatteras, NC, Monday, was expected to strengthen into a hurricane Tuesday, according to the National Hurricane Center (NHC).

“Chris has been nearly stationary the past several hours, and little motion is expected the next day or so,” NHC said Monday. “A northeastward motion is forecast to begin late Tuesday, and Chris is forecast to accelerate northeastward on Wednesday and Thursday.”

Turning to the spot market, forecasts for widespread heat coincided with strengthening spot prices across large portions of the Lower 48 on Monday, including another wave of sharp increases in sweltering Southern California.

“Hot high pressure will build back across the eastern U.S. the next few days with highs of upper 80s to 90s returning to Chicago to New York City,” NatGasWeather said. “The rest of the country remains very warm to hot with highs of upper 80s to 100s, hottest over California, the Southwest and Texas.

“A weather system with showers and cooling will sweep across the Great Lakes and Northeast Thursday and Friday, easing national demand from high to moderate,” the firm said. “However, hot high pressure will return across the North and East next weekend to again dominate most of the country.”

In Southern California, where Radiant Solutions on Monday was forecasting highs in the low to mid 90s in Burbank, CA, to last through the end of the work week, the volatile SoCal Citygate was once again the biggest mover, jumping $1.51 to average $6.92. Last Thursday, amid forecasts calling for highs in the triple digits in Southern California, average prices at the supply-constrained trading point climbed above $8 before moderating heading into the weekend.

Utility Southern California Gas Co. (SoCalGas) on Monday was forecasting system demand of around 2,600,000-2,700,000 Dth/d over the next few days, versus estimated receipts of around 2,550,000 Dth/d. The utility was expecting storage withdrawals Monday and Tuesday of more than 100,000 Dth/d.

SoCalGas, along with fellow Sempra Energy-owned San Diego Gas & Electric, told shippers that a system-wide curtailment notice issued last week in advance of the recent heatwave was ended as of Monday morning.

Elsewhere in the region, SoCal Border Average surged 69 cents to $3.65, while in Arizona/Nevada El Paso S. Mainline/N. Baja climbed 82 cents to $4.02 as Kern Delivery added 63 cents to $4.13.

On the other side of the country, a number of Northeast and Appalachian locations rebounded by double digits Monday as forecasters noted a return of hotter temperatures for a region that had cooled off (relatively speaking) over the weekend.

AccuWeather was predicting highs in the low 90s in New York City Tuesday, versus highs in the upper 70s and low 80s Friday and Saturday. Boston was similarly expected to see highs reach the low-90s for the first two days of the work week after seeing highs in the mid 70s and low 80s Saturday and Sunday, according to the forecaster.

Algonquin Citygate added 40 cents to $2.93, while Transco Zone 6 New York added 68 cents to $3.07. Further upstream, Texas Eastern M2 30 Receipt added 13 cents to $2.25.

In West Texas, a one-day Northern Natural Gas maintenance event scheduled for Thursday could restrict flows out of the Permian Basin, according to Genscape Inc. analyst Vanessa Witte.

“Operational capacity will be restricted to 440 MMcf/d from Brownfield and 445 MMcf/d from Mitchell to Gaines” during the event, Witte said Monday. Similar maintenance was done last Thursday and Friday, “where scheduled capacity reduced by around 170 MMcf/d day/day cumulatively between Brownfield and Mitchell, which was a similar reduction in operational capacity. Despite the reduction in northbound flows, nominations at Field to Demarc remained steady during this time.”

Prices in West Texas were mixed Monday. Waha fell 4 cents to $2.12 as El Paso Permian added 4 cents to $2.18.

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