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Cooler Long-Range Temps Seen as Natural Gas Futures Retreat; Spot Prices Mixed

  • June contract expires 6.4 cents lower at $2.875; July down 6.0 cents to $2.903
  • “The market was probably positioned for a little bit of profit-taking,” says Powerhouse’s Thompson
  • Afternoon model guidance “increased some of the heat risks in the long-range that have been decreased over the last few days”: Bespoke
  • Subtropical Storm Alberto makes landfall in Florida -- impacts demand but not production, according to Genscape 

After rallying last week, natural gas futures sold off Tuesday ahead of the June contract’s expiration as forecasts were advertising somewhat cooler trends by the second week of June. In the spot market, declines throughout much of the Midwest and Gulf Coast countered gains in the Northeast and in the West, and the NGI National Spot Gas Average finished even at $2.50.

The June contract rolled off the board 6.4 cents lower at $2.875 Tuesday after trading as high as $2.968 and as low as $2.838. July settled at $2.903, down 6.0 cents on the day.

After a bullish run coming into Tuesday’s session, including a nearly 10-cent rally a week earlier, “the market was probably positioned for a little bit of profit-taking,” according to Powerhouse Vice President David Thompson.

“We’d gotten above the $2.80 level that had been resistance for a couple months...so it was in a position where a sell-off might happen,” he told NGI.

Bespoke Weather Services said Tuesday its outlook had shifted from “slightly bearish to neutral with a slight bearish bias as we saw the high confidence move of the week already occur, with the July contract briefly touching $3 over the holiday before reversing into our $2.87-2.90 support level.

“Prices attempted to break even lower” late on Tuesday morning “before afternoon model guidance increased some of the heat risks in the long-range that have been decreased over the last few days,” Bespoke said. “The trends that were shown on model guidance were believable enough to shift our sentiment a touch, as the main uncertainty moving forward is whether cool weather will be able to displace more significant heat across Texas and much of the South.”

The 2018 Atlantic hurricane season’s first named storm, Subtropical Storm Alberto, made landfall along the Florida Panhandle Monday, bringing strong winds and heavy rainfall, according to news reports and information from the National Hurricane Center (NHC). After reaching land Alberto weakened and was downgraded to a subtropical depression.

“Gulf of Mexico offshore production appears to have remained unaffected by the storm,” according to Genscape Inc. analysts Allison Hurley and Josh Garcia. “Destin and High Point specifically posted notices related to the storm alerting shippers that they did not expect adverse impacts to gas transportation service nor the need to evacuate personnel.”

Meanwhile, the storm’s landfall appeared to be demand destructive for areas in the Southeast along its path, according to Genscape.

“Aggregate demand in Florida, Alabama, Mississippi and Georgia fell to an average of 7.89 Bcf/d over the weekend after reaching as high as 9.35 Bcf/d the week prior,” Hurley and Garcia said. “Demand began falling on Friday” even with more cooling degree days (CDD) “throughout the week.” Alberto’s winds, followed by flooding, knocked out power for roughly 30,000 utility customers in Florida and Alabama as of Tuesday morning.

The National Weather Services (NWS) said Tuesday Alberto was “slowly weakening” on its path northward but was still “generating thunderstorms across much of the eastern Gulf states, Southeast, Mid-Atlantic and Tennessee Valley. Heavy rain from Alberto over this area warranted a moderate risk for excessive rainfall with the increased threat of flash flooding.

“As the remnants of this system lift into the Ohio Valley on Wednesday the area of slight risks expands northward into the Midwest, Ohio Valley and northern Mid-Atlantic,” NWS said. “Additional amounts of two-to-four inches of rain, with isolated higher totals, is likely to fall from northern sections of Alabama/Georgia northward across western Tennessee/Kentucky into southern Illinois.”

Turning to the spot market, in the Southeast Transco Zone 4 dropped 7 cents Tuesday to average $2.81.

“Kicking off the holiday-shortened week, Lower 48 production is making a slow climb back to the 79 Bcf/d mark it hasn’t reached since the start of the month,” Genscape analyst Rick Margolin said.

Data from affiliate Spring Rock showed Tuesday’s estimated production totaling 78.97 Bcf/d, he said.

“During the past 10 days we’ve seen a modest uptick in volumes from the mid-month lows,” Margolin said. “Marcellus volumes are leading the overall uptick, with Northeast Pennsylvania production running about 1 Bcf/d higher than mid-May levels, and Southwest Pennsylvania up about 0.2 Bcf/d from mid-month. Gulf of Mexico volumes are also contributing.”

As for demand, “notably warmer-than-normal temperatures forecast across the Lower 48 should spur higher burns,” he said. “Genscape meteorologists are forecasting Lower 48 population-weighted CDDs will run well above normal through the 14-day window, increasing daily this week to a peak of 94.2 CDDs by Saturday, about 55% above normal.”

Hot temperatures are expected to be focused in the central United States, from Texas through the upper Midwest, according to Margolin, who said power burns are expected to average 30.7 Bcf/d nationally this week, about 4.3 Bcf/d higher week/week and about 7.3 Bcf/d higher year/year.

Other factors impacting market balance this week include an uptick in imports from Canada (up to 6.3 Bcf/d with restrictions in Alberta temporarily lifted) and lower-than-normal liquefied natural gas exports because of “ongoing issues” at Cheniere Energy Inc.’s Sabine Pass terminal.

Widespread above-normal temperatures in the forecast this week for much of the Midwest, Midcontinent and Texas weren’t enough to drive spot prices higher in those regions after gains last week. Joliet fell a dime to $2.58, while NGPL Midcontinent shed 5 cents to $2.40.

Radiant Solutions was calling for highs in Minneapolis to climb into the 80s through the end of the week, around 10 degrees warmer than normal. St. Louis was expected to see highs reach the upper 80s to low 90s over the next several days, also around 10 degrees above normal. Chicago was expected to see more variable temperatures this week, with milder conditions Wednesday (highs in the mid 70s) giving way to highs in the low 90s Thursday, according to the forecaster.

In Texas, where AccuWeather was forecasting highs in the triple digits across much of the state throughout the rest of the week, prices moderated. Houston Ship Channel gave up 4 cents to $2.95, while further south, Texas Eastern S. TX dropped 6 cents to $2.90.

In California, the constrained SoCal Citygate surged $1.34 to average $3.70 as utility Southern California Gas (SoCalGas) was expecting a small uptick in demand coming back from the long Memorial Day weekend. SoCalGas was estimating demand for Tuesday and Wednesday of around 2.25-2.35 Bcf/d, up from demand totaling just under 2.1 Bcf/d Monday. The utility was forecasting mild composite weighted average temperatures in the mid 60s over the next several days.

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