End-of-week selling on Friday produced a sea of red for natural gas prices for deliveries Saturday through Monday, while natural gas futures followed suit as the June contract slumped 5.9 cents to finish the day's regular session at $2.096, down five-tenths of a penny from the previous Friday's close.
NGI's National Spot Gas Average on Friday came in at $1.82, down 7 cents from Thursday, and the loss would have been greater on the day if not for points in the Northeastern region, which saw a number of significant gains on forecasts that temperatures are expected to plunge in the Northeast over the weekend and early into the week (see Daily GPI, May 12).
NGI's Northeast Regional Average was the only one nationally to post a gain on Friday, adding a penny to $1.68. The Algonquin Citygate shot up 32 cents to average $2.36, while Tenn Zone 6 200Line added 5 cents to average $2.07. However, the region did display some red as Transco Zone 6 NY dropped 7 cents to $1.48 and Tennessee Zn 4 Marcellus declined by 2 cents to $1.35.
The declines were all by double-digits from the Rocky Mountains to the West Coast. Cheyenne Hub dropped 12 cents to $1.77 and Opal came in 15 cents lighter at $1.75. In California, SoCal Citygate declined by 28 cents to $1.87 and PG&E Citygate slid 18 cents to average $1.95.
June natural gas futures on the day traded within an 8.9-cent range on Friday between $2.075 and $2.164, but the fact that the contract was taking a loss on the day was never in question. Even with Thursday's bullish 56 Bcf storage injection report for the week ending May 6, futures remain largely range-bound. While acknowledging the slide in futures to the bottom of the recent range, Citi Futures Perspective Analyst Tim Evans is not counting the price bulls out yet.
"Natural gas is...seeing some selling to end the week, with prices still bottled up within their recent trading range," he said Friday. "We continue to view the near-term fundamentals as constructive, with enough weather-related demand to limit storage injections over the next few weeks, trimming the year-on-five-year average storage surplus. [Friday’s] temperature forecast was mixed, in our view, adding a bit of demand for the week ahead but taking it away from the week ending May 27."
Taking a look at the long game, some analysts see a lasting price recovery before the year is finished.
The U.S. gas markets "could see a sharp late-year upward move on tightening supply-demand conditions and more normal storage," said Jefferies LLC analysts. "Supply is cracking (finally) amid severe underinvestment and worsening Northeast infrastructure bottlenecks...We remain gas bulls, estimating prices of $3.50/4.00 in 2017/long term. Weather-induced spikes above our forecast appear likely in many years."
It's back to the "days of 'spikes and roses,'" the Jefferies analysts said. "We think the U.S. natural gas 'set-up' could be exceedingly bullish in 4Q2016-plus, with potential winter spikes well above our $3.50/MMBtu 2017 view. Why? The storage surplus is likely to be shed materially during refill season (our supply-demand factor model now shows Nov. 1 storage at 4.1 Tcf), production is falling, and capital formation and regulatory conditions for infrastructure are challenged."
Producers can't just turn on the gas taps if prices rise, Jefferies analysts said. "There is no argument here that vast quantities of low-cost gas resource exist in the U.S. onshore, but activation times measure at least six-to-nine months from the 'time zero' capital investment decision." Jefferies’s updated 21-basin gas supply model shows 2016 production down 6.4% from 2015. Of note, preliminary March data showed a 1 Bcf/d month/month decline.
However, don't underestimate the Marcellus Shale, said Morningstar Inc. Analyst Mark Hanson. If gas prices were to increase to $3.50/Mcf, the play would be "insanely attractive...It would only take 15 or 20 more rigs to ramp up production in a meaningful way."
Judging by the Baker Hughes Inc. (BHI) rig report of a week ago, it looked as if the falling U.S. rig count was coming in for a landing; the most recent count suggests that it will be a bumpy one. In its survey for the week ending May 13, BHI said nine rigs left U.S. play (six from land, one from the inland waters and two from the offshore). That compares with the preceding week when only five U.S. units departed. However, a closer look at the data for the week ending May 13 shows that while 10 oil rigs packed it in during the week, one natural gas rig was actually added (see related story).