September natural gas in Wednesday's trading reflected the market's continued disappointment with summer cooling demand, dropping close to a nickel. With bidweek just around the corner, the cash market largely moved in lockstep with the futures; most regions dropped 2-4 cents, and the NGI National Spot Gas Average finished down 6 cents at $2.68/MMBtu.
The Nymex September contract fell 4.5 cents to settle at $2.890 Wednesday, the third consecutive day/day decline after flirting with $3/MMBtu late last week. The October contract dropped 4 cents to settle at $2.925.
The drop-off Wednesday came as weather models turned a touch cooler for the back half of August, and Thursday's 10:30 am EDT storage report from the Energy Information Administration (EIA) wasn't expected to offer much to excite the bulls. Estimates called for a build in line with the five-year average, which would have to go down as bearish compared to the lean 28 Bcf injection that sent futures surging last week.
"The U.S. natural gas market is testing the downside on a cooler temperature forecast than a day ago that reduces upcoming power sector demand," Citi Futures' Tim Evans wrote in a Wednesday note to clients. "Expectations for Thursday's EIA storage report look steady near 50 Bcf in net injections, which would match the 50 Bcf five-year average refill for the week ended Aug. 11. On a short-term technical basis, we think September natural gas needs to climb back above $2.91 or so to affirm that a short-term low has been established."
It's been the same story all summer: not enough sustained cooling demand, said Steve Blair, vice president of Rafferty Commodities Group Inc.
"This market is lackluster because we've had no summer,” Blair told NGI. “Consumer demand and power generation demand has just been lacking, and I think you have a situation where the market says, 'OK, it's the middle of August already. Summer's just about over.' Even if we get two weeks of hot weather, how much of a dent is that really going to make, not only in the demand picture but also in the storage picture?...
"So I think we've got a market that has almost resigned itself to the fact that we're not going to get enough summer demand at this point to make that much of an impact on prices."
In a Wednesday note to clients, NatGasWeather.com said "the market's seemingly becoming disappointed cooler trends started showing up yesterday and overnight over the eastern U.S. for late next week and the last several days of August. It's still expected to be very warm to hot over large portions of the country the next seven days to drive moderately stronger-than-normal demand to further reduce surpluses versus the five-year average, just not as impressive with the pace after."
Blair said a few days of red on the six- to 10-day weather maps won't be enough to convince the market of a sustained increase in demand after an inconsistent cooling season. Above-normal temperatures may be a case of "too little too late at this point in the summer," he said, though any unexpected heat in September could see the outlook "change dramatically."
In the day-ahead market, Henry Hub followed the futures' lead and fell 4 cents to $2.89/MMBtu, representing but one drop in a sea of red ink flowing throughout the country Wednesday. With the exception of the Northeast and Appalachia, where pipeline constraints drove more pronounced losses, the cash market reflected the general what-happened-to-summer malaise observed in the September contract.
Most regional averages trended within a penny or two of the futures, but the Northeast, coming off significant gains over the last three trading days, fell sharply Wednesday. Forecasts for key Northeast markets pointed to a falloff in cooling demand for the remainder of the workweek. AccuWeather.com forecast Boston's high of 84 Wednesday would fall to 81 Thursday and 74 Friday, while New York was expected to fall from a high of 87 Wednesday to 83 Thursday and 79 Friday.
Meanwhile, Tennessee Gas Pipeline Co. LLC (TGP) notified shippers Wednesday of several restrictions because scheduled maintenance and nominations exceeded operational capacity, including restrictions at several points along the Northeast portion of its system. According to a Northeast trader, the TGP maintenance was causing more gas to flow onto Transco NY and Non-NY, as well as Algonquin Gas Transmission.
Genscape Inc. analysts reported that "emergent repairs" on TGP's Segment 548 from Tennessee to Mississippi could interrupt about 260 MMcf/d of southbound flows beginning Wednesday, capping the line at 966 MMcf/d from regular operating capacity of 1,216 MMcf/d.
"It is possible that some of the cut scheduled volumes will travel south along Segment 163, with nominations along here showing a day/day jump of 132 MMcf/d," Genscape’s team said. "This event could cause some basis volatility in the Louisiana markets and the 500 Line as a result of the restrained flow, however, some impact will be mitigated via rerouting onto the 100 Line or via interconnects upstream.
"Additionally, warmer-than-normal temperatures are expected to move into the Southeast," Genscape analysts said. They projected 16.3 Bcf/d of demand Wednesday and 16.9 Bcf/d Thursday, good for day/day increases of 0.4 Bcf/d and 0.6 Bcf/d, respectively.
Wednesday's day-ahead market seemed unimpressed with the forecasts of warmer temperatures in the Southeast.
Tennessee Line 500 traded with the rest of the South Louisiana region Wednesday, falling 3 cents to $2.87. The Southeast region, meanwhile, fell 7 cents on the day to $2.99, with Transco Zone 4 giving up 3 cents to end at $2.92.
In the Atlantic Basin, the National Hurricane Center was tracking a pair of disturbances that each had at least a 40% chance to develop into cyclones over the next 48 hours. One disturbance was developing 800 miles east of the Lesser Antilles, while the other was located 800 miles west of the Cabo Verde Islands.
Looking ahead to Thursday's EIA storage report, Citi Futures' Evans predicted a 35 Bcf build for the week ending Aug. 11. A survey by The Desk's John Sodergreen showed a consensus average build of 47.6 Bcf, with a survey range of 35 Bcf to 55 Bcf. Kyle Cooper of IAF Advisors estimated a 46 Bcf build.
A Bloomberg survey produced an injection range spanning from 35 Bcf to 58 Bcf with a median expectation of a 49 Bcf build. For the same week last year a date-adjusted 23 Bcf was injected and the five-year average build for the week sits at 50 Bcf.