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September Natural Gas Strengthens as Hotter Outlooks Intensify; Spot Gas Fizzles

  • September natural gas prices approach $3 as weather forecasts turn even hotter for end of August/early September
  • Longer lasting heat means storage deficits will likely remain until mid-September at the earliest
  • Rising production this fall should add downside risk to natural gas prices
  • Spot gas prices decline as cooler weather on tap through the coming weekend

September natural gas prices strengthened Tuesday as earlier indications of hotter weather to close out August became more clear in the latest weather model runs. The Nymex September gas futures contract settled 3.9 cents higher at $2.98.

Spot gas prices, however, mostly fell as weather systems and cooler temperatures were expected to sweep across the Midwest and eastern United States for the next several days. The NGI National Spot Gas Average fell 3 cents to $2.85.

In futures action, the Nymex September contract was strong out of the gate Tuesday as both the overnight Global Forecasting System (GFS) and European weather models were trending hotter for next week through Sept. 5, on a “stronger/hotter/bullish ridge” over the central, southern and eastern United States. That should lead to strong late season summer demand, according to NatGasWeather.

The prompt month opened Tuesday’s session more than a penny higher and continued to strengthen throughout the day.

Weather forecasts showed mostly comfortable conditions for the Midwest and eastern United States through the week before another weather system is expected to sweep across the Great Lakes/Ohio Valley Friday and Saturday with a final round of showers and cooling. Hot high pressure then is forecast to quickly strengthen across the eastern half of the country late into the weekend through the middle of next week.

This is where the GFS data trended even hotter in the midday Tuesday run to add several cooling degree days (CDD) as daytime temperatures were expected to climb into the mid-80s to 90s across the Midwest, Mid-Atlantic and Northeast, aided by hot and humid conditions over the South and Southeast, NatGasWeather said.

The latest data showed the hot upper ridge holding longer, into the first week of September at least, where demand would likely be stronger than five-year averages, the forecaster said. The result of the coming pattern is that hefty storage deficits near 600 Bcf shouldn't be expected to improve until mid-September at the earliest, even in spite of fresh record production, the weather forecaster said.

The latest outlooks for August/September from Weather Data Technologies (WDT) feature a combined 566 CDDs, up almost 55 CDDs versus the same two-month period in 2017, according to EBW Analytics.

Notably, WDT has warmed its August and September forecasts considerably during the last month, adding 54 CDDs (10.5%) to already robust demand estimates since July 20. That increase could drive a 0.7 Bcf/d uptick in power sector natural gas demand over the two-month stretch, EBW said.

The strengthened cooling outlook and its impact on storage has helped offset the bearish impact of production growth, driving front-month prices higher in recent weeks in tandem with a series of bullish storage reports. “Hotter-than-normal weather will flip to a bearish catalyst by late September, however, likely augmenting downside price pressure on natural gas,” EBW CEO Andy Weissman said.

Meanwhile, continued gains on the production front should add further downside risk to prices.

“Even by recent standards, the growth in production this summer has been startling, with a reported increase of 2.8 Bcf/d in the past eight weeks, one of the largest short-term gains ever,” Weissman said. Further, with 4.5 Bcf/d of takeaway capacity in the Northeast scheduled to come online between now and October, the increase during the next eight weeks could be almost as steep.

“This runaway production is likely to restrict near-term gains. As the impact of recent forecast shifts on storage becomes clearer, however, the September contract is likely to test resistance near $3.00,” Weissman said.

Indeed, a more supportive futures strip could mean additional gains are in the cards. The Nymex October contract rose 3.2 cents to $2.964, and the winter 2018-2019 (November-March) picked up 2.2 cents to reach $3.08.

Even without a supportive futures strip, though, the September contract still could test $3 given hot weather and low storage inventories, according to Bespoke Weather Services. “Such a test could easily result in a reversal,” especially if weather guidance begins to ease back on CDDs, Bespoke chief meteorologist Jacob Meisel said. Before expecting a broader reversal in the September contract, however, the weather forecaster would need to see signs of CDD losses.

Spot Gas Mostly Softens On Brief Cooldown

Spot gas prices moved lower Tuesday as cooler weather was in store through the weekend, thanks to a series of weather systems that were expected to bring rain and lower temperatures to the Midwest and eastern United States. Daytime temperatures were forecast to reach the 70s to mid-80s, making for light demand, according to NatGasWeather.

The West, South and Southeast were expected to remain hot, however, with highs reaching the upper 80s to 100s. Beginning this weekend, hot high pressure was forecast to begin building over the eastern half of the country, with temperatures expected to return to the mid-80s to 100s and setting the stage for strong national demand once again.

Cooler weather, however, was finally expected to arrive in the West during this time, particularly over the northern West Coast. AccuWeather forecasts showed highs in Seattle falling back to the low 70s as early as Thursday and then dropping to the mid-60s by Monday.

Northwest Sumas spot gas dropped 6 cents to $2.59, while Malin fell 7 cents to $2.69. Farther south, SoCal City-gate tumbled more than 60 cents to $5.39.

Genscape Inc. showed Pacific Northwest demand falling 78 Bcf/d day/day to 1.01 Bcf/d on Wednesday, and then generally holding near that level through Sept. 4. California demand was projected to hit 6.14 Bcf/d on Wednesday, a day/day drop of 29 Bcf/d. Demand was expected to average near 6.23 Bcf/d during the Aug. 27-31 week and then hold near that level for at least the first two days of the following week.

In West Texas/southeastern New Mexico, prices slipped a couple of cents on average, although Waha tumbled a more substantial 9 cents to $2.00. El Paso-Permian rose 4 cents to $2.16.

Next-day gas in East Texas was relatively steady, although stronger demand in the more densely populated Houston area lifted Houston Ship Channel prices up nearly a nickel to $3.11. The East Texas regional average was up just a penny to $2.95.

Overall, Genscape showed demand in East Texas plunging 1.45 Bcf/d day/day to 2.52 Bcf/d on Wednesday, a level at which demand is expected to remain near through at least Sept. 4.

Over in the Midcontinent, spot gas prices were mostly higher, although most pricing locations posted only small increases. The exceptions were at OGT, which climbed more than a dime to $1.89, and at Southern Star, which rose 6 cents to $2.46.

Appalachia spot gas held relatively steady, with Tennessee zone 4 Marcellus holding at $2.60 and Dominion South going unchanged at $2.63.

Northeast points were all over the place, with Algonquin City-gate slipping a penny to $2.89, Iroquois zone 2 picking up a nickel to reach $3.05 and Transco zone 6 NY falling 3 cents to $2.98. Genscape projected Appalachia demand to fall 2.27 Bcf/d day/day to 7.54 Bcf/d on Wednesday. Demand was expected to hold near that level for the remainder of the week before rising back above 8 Bcf/d for Aug. 27 and 28.

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