• June settles 0.8 cents lower at $2.763
  • Focus on May injections “and whether the pace will be fast enough to satisfy markets,” NatGasWeather says
  • Raymond James lowers 2019 natgas forecast 50 cents to $2.25 on production growth, especially associated gas
  • Waha spot falls; maintenance on Northern Natural could worsen basis, says Genscape 

Natural gas futures recovered from a morning selloff to finish within a penny of even Monday amid bearish sentiment centered around a mild May forecast and strong production. With April cold no longer around to jumpstart demand, spot prices weakened throughout most regions; the NGI National Spot Gas Average fell 4 cents to $2.31/MMBtu.

The June natural gas contract settled at $2.763, down 0.8 cents after trading as low as $2.728 earlier in the day. July finished 1.1 cents lower at $2.800.

NatGasWeather.com said the most recent weather data Monday continued to show “a very comfortable spring pattern in store for the first half of May apart from brief cooling across portions of the Midwest and Northeast around May 6-7, although this system was a little milder and less impressive this round.

“...Based on the latest data, we continue to expect the second and third weeks of May to play out quite comfortable across the country with mostly 70s and 80s, typical of progressing into the core of the shoulder season,” the firm said. With storage deficits potentially increasing further with this week’s Energy Information Administration (EIA) report, “the focus now turns to when they will be reduced and whether the pace will be fast enough to satisfy the markets.”

Typical mild demand from the first few weeks of May combined with “an oversupplied market” could deliver “an extended string of 100 Bcf-plus injections” starting next week, according to EBW Analytics Group CEO Andy Weissman.

“With the beginning of summer weather still four to eight weeks away and few if any near-term bullish catalysts in sight, support for the June gas contract at $2.69 is likely to be tested late this week or early next,” Weissman said. “If it fails, a $2.60 target is likely.”

Meanwhile, a team of analysts with Raymond James & Associates Inc. weighed in Monday with an updated long-term outlook that’s not exactly rosy for natural gas price bulls. The overall picture for U.S. natural gas demand is healthy, they said, but the onshore supply surge, particularly from associated gas, should more than cancel out strong demand growth, and a lower price is needed to balance the market over the long-term.

“Given the high degree of associated gas production generated by some of the largest shale oil plays, U.S. natural gas prices have effectively become inversely related to oil prices,” said analysts J. Marshall Adkins and Pavel Molchanov in a note Monday.

“The bottom line is that we are maintaining our 2018 U.S. gas price forecast of $2.75/Mcf, but lowering 2019 from $2.75 to $2.25. Longer-term, we now think $2.50 is more reasonable than $2.75.”

In their report, the Raymond James team projected a combined 13 Bcf/d in supply growth through 2018 and 2019, including 5.3 Bcf/d from the Permian Basin alone by 2020. This comes as demand growth from liquefied natural gas (LNG) exports is expected to be hampered in 2019 by recently-announced delays to the Freeport LNG export terminal.

Turning to the spot market, a cooler weather system with showers was making its way out of the Northeast Monday, according to NatGasWeather. “However, very comfortable conditions with highs of 70s and 80s have been gaining ground over the central and southern U.S. and will expand to include the Great Lakes and East Tuesday to Friday for weak demand, the lightest so far this year.

“It will be a touch cool over portions of the West as weather systems track inland for regionally stronger demand,” NatGasWeather said. “Most importantly, with the eastern and southern U.S. warming into the 70s and 80s for the rest of the week, demand will be much lighter going forward.”

Double-digit spot price declines were the norm throughout the Midwest and Midcontinent Monday. Chicago Citygate fell 15 cents to $2.37, while Northern Border Ventura shed 25 cents to $2.07.

Based on supply and demand data, the recent unseasonal run of consecutive April weekly storage withdrawals has come to an end, according to Genscape Inc. The firm is estimating a 55 Bcf injection into Lower 48 gas stocks from this week’s EIA report.

“For the week ahead, we have demand projected to average about 55.1 Bcf/d, a notable retreat from the cold-driven levels of the past few weeks, but finally back in line with normals for this time of year,” Genscape analyst Rick Margolin said. “That retreat should be more than sufficient to allow production to outpace demand and support injections, although heavy maintenance across the country continues to keep a lid on production.”

Genscape affiliate “Spring Rock’s daily pipe production estimate shows production continues running flat since mid-March, having logged just one day this year above the 79 Bcf/d mark.”

Prices generally trended downward in the Northeast and Appalachia, including at Tennessee Zone 6 200L, which fell 14 cents to $2.49. In Appalachia, Dominion South fell 31 cents to $2.05, while Tetco M2 30 Receipt gave up 21 cents to $2.06.

In the West, the volatile SoCal Citygate spiked again Monday, surging 98 cents to average $3.60 after jumping more than $2 day/day a week earlier and close to $1 day/day on each of the previous two Mondays before that.

Southern California Gas Co. -- dealing with a number of ongoing import and storage restrictions that have contributed to frequent prices spikes at SoCal Citygate going back to last year -- was forecasting higher demand for Tuesday and Wednesday of around 2.4-2.5 Bcf/d, up from just under 2 Bcf/d on Sunday. Receipts were forecast to total just over 2.4 Bcf/d, potentially forcing net storage withdrawals to meet demand for Tuesday and Wednesday, according to the utility’s website.

Radiant Solutions was calling for temperatures in Burbank, CA, to come in around 5-6 degrees cooler than normal the next two days, with lows in the lower 50s and highs in the low 60s.

In West Texas, Waha tumbled 22 cents to $1.58, reversing gains from Friday. Elsewhere in the region, El Paso Permian gave up a dime to average $1.37.

Amid reports of surging production and takeaway constraints, natural gas spot prices in the Permian Basin have traded recently at some of the lowest levels in 20 years, according to Daily GPI historical data.

Maintenance during the month of May could put more downward pressure on Waha basis differentials, according to Genscape analyst Vanessa Witte.

“Waha basis will face more headwinds as Northern Natural Gas (NNG) will reduce operating capacity through the Brownfield North Group for the entirety of May for planned maintenance,” Witte said. “Capacity through Brownfield North will be reduced by 36% from its normal 462 MMcf/d down to 300 MMcf/d.

“Nominations have averaged around 400 MMcf/d for the prior 30 days. NNG expects impacts to receipts upstream from the Permian and Anadarko basins, and deliveries downstream to points south of NNG’s Demarcation in Kansas.”