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Natural Gas Futures Ease as Bulls Fail Test of Resistance; Cooling Demand Boosts Spot Market

Natural gas futures pulled back slightly Tuesday as analysts pointed to the potential for prices to retreat further ahead of an Energy Information Administration (EIA) report expected to show a larger-than-average storage injection. In the spot market, hotter temperatures supported higher prices in Texas and the Midwest, while Appalachia continued to show volatility coinciding with maintenance in the region; the NGI National Spot Gas Average added a nickel to $2.44/MMBtu.

The June contract settled 0.6 cents lower Tuesday at $2.836 after trading as high as $2.864. July settled at $2.854, down 0.5 cents on the day.

Bespoke Weather Services said its outlook was leaning slightly bearish following Tuesday’s session, with prices pulling back from resistance around $2.85-2.87 after initially showing strength in the morning.

“Afternoon weather forecasts were not particularly impressive either; we have seen some hotter trends across the Midwest, but confidence continues to increase that heat will struggle to become established across the Southeast and likely much of the East Coast, limiting how elevated cooling demand will be able to get,” Bespoke said.

“...We see strong support from $2.75-2.77 with the summer strip remaining bid,” but with slight gas-weighted degree day “losses on afternoon model guidance and the potential for heat the final week of May to underwhelm, we continue to see risk skewed lower” heading into Thursday’s EIA storage report, which is expected to show a large injection.

Intercontinental Exchange EIA storage futures settled Monday at an injection of 105 Bcf. Last year, EIA recorded a 64 Bcf build for the period, and the five-year average is an 87 Bcf injection.

Global energy research firm Energy Aspects said in a recent note that it expects EIA to report a string of 90 Bcf-plus injections at least through the week ending June 1.

“Our weekly balances point to a net injection close to 14 Bcf/d (plus 400 Bcf total month/month) in May and a whopping 3 Bcf/d higher year/year (y/y),” according to the firm. “The market has not seen such a level of May restocking since the abnormally cold winters of 2013/14 and 2014/15, when additions ranged just above 15.5 Bcf/d.

“While such high injections are superficially bearish, they are also necessary as the shoulder season is the most opportune time to make progress in meeting the 2 Bcf/d or so of y/y gains in storage demand that are required this injection season,” Energy Aspects said. “Even then, inventories will only lift to an historically low 3.45 Tcf end-of-season carryout. During the low-demand shoulder months, averaging above the 2 Bcf/d y/y injection benchmark is necessary given that falling beneath that rate could easily occur if hotter-than-normal weather appears during the peak cooling season.”

In the spot market, points throughout Texas, the Midwest and the Midcontinent continued to work higher Tuesday amid forecasts for widespread above-normal conditions this week.

Radiant Solutions was forecasting above- to much-above normal temperatures across much of the South, Midwest and Mid-Atlantic Wednesday, including highs in the 80s and 90s in population centers like Houston, Dallas, St. Louis and Memphis. Further north, even Minneapolis was expected to see highs in the mid-80s Wednesday, according to the firm.

In East Texas, Houston Ship Channel tacked on 5 cents to average $2.88, while in West Texas, Waha added 9 cents to $1.85.

Further north, Northern Natural Ventura climbed 10 cents to $2.55, while Joliet added 8 cents to $2.61.

“With the current weather pattern across the Lower 48, we are seeing glimpses of summer temperatures as the likes of Houston and Dallas are hitting the upper 90s by the latter part of the afternoon,” Portland, OR-based analytics firm Energy GPS said in a note Tuesday. “In the Midwest/Ohio Valley, the warmer weather is a nice reprieve from the colder April...Over in the East, the weather pattern is unique with Philadelphia, Washington, DC, and New Jersey all quite warm whereas the Northeast territories are much cooler.”

The recent heat has driven power burns about 3.7 Bcf/d higher month-to-date versus the average for the entire month of May 2017, according to the firm.

“This number will be something to watch as we move forward, as the average temperatures will continue to rise, which should equate to higher net loads (power demand minus wind/solar/hydro) across the country,” Energy GPS said.

Prices were mixed in the Northeast Tuesday as Radiant was looking for warmer-than-normal temperatures Tuesday to moderate Wednesday in cities like Boston, New York and Philadelphia.

Algonquin Citygate shed 11 cents to $2.56, while Transco Zone 6 New York climbed 8 cents to $2.49.

Further upstream, Appalachian prices continued to show volatility with pipeline maintenance causing disruptions in the region. After sharp declines the previous two trading days, Millennium East Pool recovered $1.19 Tuesday to average $1.82, with Tennessee Zone 4 Marcellus and Transco-Leidy Line also posting large increases after hefty declines the previous two days.

Earlier this week, Genscape Inc. analyst Molly Rosenstein reported that maintenance restrictions on Millennium Pipeline were expected to shut in production and potentially cause supply scarcity at New England points further downstream.

Rosenstein told NGI Tuesday that more than 1 Bcf/d of production had been shut in, “causing a severe New York/New England import reduction.”

Flows through the Ramapo interconnect between Millennium and Algonquin Gas Transmission (AGT) fell 559 MMcf/d day/day, she said. Consequently, Tennessee Gas Pipeline “has had to increase their net deliveries to AGT in New England. The Mendon interconnect in Massachusetts is up 140 MMcf/d, and the Mahwah interconnect in New Jersey is up 20 MMcf/d.”

Elsewhere in the region, Columbia Gas added 4 cents to $2.68.

The recently reported maintenance on TransCanada Corp.’s Leach XPress Pipeline is expected to continue Wednesday and Thursday, requiring 12-hour shut-ins at the Stagecoach-LXP and Eureka gathering systems and potentially impacting up to around 300 MMcf/d of production, according to Rosenstein.

“Gibraltar III will no longer be required to shut in, but will be limited to firm capacity only through May 17,” Rosenstein said. “Additionally, Majorsville processing plant will be capped at 400 MMcf/d primary firm (recent volumes have been below this threshold). The LXPSEG internal constraint is downstream from these outages, and will reflect total affected volumes.

“As of timely cycle, the total impact to gas flowing west” through the LXPSEG throughput meter Tuesday was around 500 MMcf/d, according to Rosenstein. “Flows on Wednesday are likely to see a similar impact, “with the point reductions coming from the shut-in of Stagecoach-LXP and Eureka.”

In Canada, disruptions to British Columbia supply Tuesday due to maintenance on the Westcoast Pipeline were not likely to have much impact on prices in the Pacific Northwest, according Genscape analyst Rick Margolin.

The Westcoast Pipeline said it would take the Fort Nelson processing plant offline for 12 hours Tuesday, Margolin said.

“Westcoast no longer provides plant-level nominations data, but downstream flows measured from N4 to Station 2 have historically shown declines during previous Fort Nelson events,” he said. “The last major event at Fort Nelson in mid-March coincided with a 230 MMcf/d drop in flows through N4. Previous disruptions have also coincided with moderate strengthening of downstream Station 2 cash basis.”

Tuesday’s event was expected to be less impactful given “quite mild” demand in markets in the Pacific Northwest and Vancouver, Canada, due to “slightly warmer-than-normal temperatures and strong hydro taking power loads,” according to Margolin.

Westcoast Station 2 gained C24 cents Tuesday to average C49 cents/GJ.

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