September natural gas traded in a holding pattern Friday, while the cash market retreated ahead of the weekend. Declines in the Northeast and the Southwest offset gains in the Southeast and Midwest, and the NGI National Average climbed a penny to $2.65/MMBtu.
The September Nymex contract held on to most of Thursday's 10-cent advance, but not much else. At the close Friday, September had settled at $2.983, down $.002, while October also finished down less than a penny at $3.008. September crude oil finished up 23 cents on the day, settling at $48.82/bbl.
Bolstered by a lean Energy Information Administration (EIA) storage report and forecasts showing warming temperatures toward the end of August, Henry Hub futures gained throughout the week following sustained declines through the back half of July.
"The natural gas market," like crude, "is also consolidating today," Citi Futures’ Tim Evans wrote in a Friday note to clients, "but in contrast to the petroleum markets this is taking place after a two-day surge in prices supported by both a smaller-than-expected storage injection for the week ended Aug. 4 and a temperature forecast that is now trending warmer.
"The recovery in price this week is calling fresh attention to the declining year-on-five-year average storage surplus, which could even become a deficit within the next few weeks."
In a Friday morning note to clients, PointLogic's Jack Weixel said his firm expects the year-on-five-year storage surplus to evaporate over the next 13 weeks, finishing the injection season 7 Bcf below the five-year average at 3,854 Bcf.
NatGasWeather.com said in a mid-day update that the forecasts have shifted "a little hotter for after Aug. 20, while little changed before then. Specifically, numerous weather systems with showers and cooler-than-normal temperatures will continue across the central and northern U.S. through early next week as highs only reach the 70s and 80s for regionally light demand."
With warm temperatures in the western and southern United States expected to help keep overall near-term demand "slightly stronger than normal...national demand should further increase above normal Aug. 20-25, as hot high pressure expands and gains ground to dominate much of the southern two-thirds of the country," the firm said.
The bulls had a good week in the futures market. But the weak pricing observed since late July appears to have taken its toll on natural gas-directed drilling based on the latest data from Baker Hughes Inc. (BHI).
The U.S. rig count finished the week at 949, down from 954 the week before, according to BHI. Eight natural gas-directed rigs left the patch in the United States, canceling out a weekly gain of three oil-directed rigs. After posting heavy losses the previous week, the Gulf of Mexico added a rig to finish at 17, in line with year-ago totals.
"It seems like the fallback in gas prices in recent weeks may be starting to translate to a lower gas-focused rig count," said NGI's Patrick Rau, director of Strategy & Research. "The majority of those released rigs were in Texas. It will be interesting to see whether the further delay in the Rover Pipeline will lead to any kind of rig reductions in Ohio and Pennsylvania."
Rau said the gas-directed rigs that left the patch were probably lower horsepower rigs as exploration and production companies continue to prize the higher-spec rigs capable of drilling longer laterals.
"In fact, demand for those will likely continue to grow, even if the absolute U.S. rig count falls over the coming weeks," Rau said. "In the face of lower commodity prices, producers will seek to lower their costs and improve their efficiencies all the more, everything else being equal. More and more these super spec rigs are becoming the vehicle to drill those more efficient, longer-lateral wells, and once they get their hands on a super spec rig, operators are loathe to let go."
Cash prices in the Northeast and Appalachia continued their volatile ways Friday, with packages for weekend delivery showing double-digit losses at most points, driven by lower weekend demand and pipeline constraints.
New York ISO, ISO New England and PJM Interconnection all forecast peak power loads to decline over the weekend, and weather forecasts showed normal to below-normal temperatures at key markets like Boston and New York.
In a Friday notice, Iroquois reported constraints on weekend deliveries flowing through its Brookfield Interconnect with Algonquin Gas Transmission. Packages at Iroquois Zone 2 fell 42 cents to $2.18, while Iroquois Waddington dropped 37 cents to $2.28.
The return of a quorum at the Federal Energy Regulatory Commission offered some good news for Appalachian producers needing to see new pipelines approved to relieve the regional bottleneck, but it didn't help much with weekend prices. Dominion South fell 7 cents Friday to $1.61, while Tetco M-2 30 receipts fell 12 cents to $1.52.
Out West, a few points in Arizona, Nevada and Southern California saw double-digit declines heading into the weekend. SoCal Citygate fell 20 cents to $3.05. El Paso South Mainline/North Baja fell 13 cents to finish at $2.75, while Kern Delivery dropped 15 cents to $2.74.
The declines were consistent with the weekend power demand forecast in the region. California ISO said it expected Friday's forecast peak demand of 40,462 MW would fall to 37,282 MW Saturday.