July natural gas futures started the week with a 5.9-cent rally to $2.949 as hotter trends showed up in medium-range weather forecasts, with lingering heat risks seen extending into the long-range.
The heat’s potential impact on already historically low storage inventories sent the prompt month as high as $2.966 before ultimately pulling back ahead of the close. Spot gas markets also moved higher on Monday amid the persistent above-average temperatures. The NGI National Spot Gas Average rose 16 cents to $2.67/MMBtu.
The Nymex July contract once again traded in a tight band of around 4 cents as weather data overnight Sunday turned decidedly hotter for this coming weekend and into next week. By midday, the data held and also teased a stronger and hotter ridge gaining ground across the country June 23-26, although exactly which regions will be impacted greatest is uncertain, NatGasWeather said.
The net result of the coming pattern is for cooling degree days (CDD) to be slightly greater than normal most days, but still with demand only near to slightly larger than normal. “Any hotter trends with the strength of the ridge and/or a shift eastward, and weather patterns will be increasingly bullish,” the weather forecaster said.
Genscape Inc. is looking for demand this week to easily crack the 60 Bcf/d mark, a point that would otherwise be a summer-to-date high except for the prolonged run of space heating demand that pushed into April. The data and analytics company projected total Lower 48 demand to hit 63.4 Bcf/d by Thursday on the back of power demand adding about 1.6 Bcf/d to a high of 33.2 Bcf/d by Thursday.
Nearly all of the power burn increases are expected to take place in the Northeast, where Genscape meteorologists forecast CDDs to bounce to about 8.5, nearly twice as high as seasonal norms. For reference, total demand last summer (except early April) did not top 63 Bcf/d until July 5.
Bespoke Weather Services, however, expressed concern that global ensemble forecasting system guidance “may be overdoing long-range heat risks” given various weather patterns in play. Still, the sustained warmth (if forecasts hold) should support a natural gas market that otherwise remains fairly loose, Bespoke said.
The eventual return of liquefied natural gas exports should tighten the market as well, although any CDD losses will “hit prices quickly.”
July prices climbed as high as $2.951 before the open as traders no doubt factored in the hotter trends and their impact on storage. But prices also struggled to continue through on the bounce as weather-adjusted power burns have been loosening and a large storage injection is expected to be announced on Thursday, Bespoke said.
“We see natural gas prices as relatively fairly valued in this range, and do not yet see what catalyst would break prices above $2.97-3.00 resistance or below $2.87-2.90 support through the week,” Bespoke chief meteorologist Jacob Meisel said.
A firm winter strip and strong cash prices thanks to limited storage levels are combining with heat risks that carry into week 3 to firm up support and present some upside this week, he said. The market, however, needs to tighten up further to really rally unless forecasts trend significantly hotter, which does not appear too likely.
Meisel said Energy Information Administration (EIA) storage data on Thursday “will certainly be far tighter” following a week with just average weather-driven demand but no holiday demand destruction. Still, Bespoke expects a rather large print as weather last week was not particularly impressive.
“From there, we should see injection size fall off as heat returns across the country, and there are risks for a rather bullish injection by the last week of June should heat arrive in force,” Meisel said.
EBW Analytics’ Andy Weissman said the July contract could remain elevated this week since many traders focus only on shifts in the color of the weather map, without recalibrating demand. He noted that the hottest weather in the next couple of weeks is concentrated in a region that relies primarily on coal, and therefore, “the impact on natural gas demand will be modest.” If more seasonal weather returns in July, however, futures are still likely to fade this summer.
The Nymex balance-of-summer (August-October) strip rose to $2.924, while the winter 2019-2019 climbed to $3.075.
On the production front, Lower 48 dry gas production recovered from last week’s low point of 77.8 Bcf/d to a high of just above 79 Bcf/d this past weekend, according to Genscape. Production group data showed Monday’s volumes estimated near 78.3 Bcf/d, lower against the weekend, primarily due to a 0.4 Bcf/d drop in output from Anadarko Petroleum Corp.’s Lancaster Plant on the Colorado Interstate Gas (CIG) system in the Denver-Julesburg Basin. It is unclear the cause of the outage as no notices had been posted by CIG or Anadarko.
Northeast production has stayed relatively stable since the explosion on Columbia Gas Transmission’s (TCO) Leach Xpress, as most of the volumes that had been hitting that system are getting rerouted, Genscape said.
Nearly the entirety of the 0.5 Bcf/d that had been flowing through TCO’s Majorsville LXP appears to have been rerouted to Texas Eastern Transmission’s (Tetco) MarkWest-Majorsville point.
The roughly 0.2 Bcf/d of Gibraltar III flow is getting rerouted to Tetco’s Nisource Midstream-Dry Ridge point, and about 0.3 Bcf/d of gas that had been flowing through the Eureka point has numerous alternative outlets; therefore, it is not likely being shut-in.
“It is unclear if/where the roughly 0.25 Bcf/d of flow through Stagecoach-LXP is being rerouted. The most immediate option is to Tetco’s Regency-Big Run point, but there has not been a change in volumes there,” Genscape senior natural gas analyst Rick Margolin said.
Turning to the spot markets, benchmark Henry Hub prices drew on their strength in futures, although persistent heat also lent support to the market. Very warm to hot conditions continued to dominate the central and southern United States with highs of 90s to 100s expected in most areas, including Texas and the Southeast, where a majority of the nation’s cooling demand the next two weeks will be driven, NatGasWeather said.
Henry Hub traded at $2.95, up 9 cents on the day. Houston Ship Channel tacked on a nickel to reach $3.00, while Katy rose 6 cents to also hit 3.00.
Over in South Texas, Tennessee Zone 0 South inched up just a couple of cents to $2.72, while Transco Zone 1 climbed 4 cents to $2.82.
Permian Basin prices rose considerably even as this past Friday’s Baker Hughes Inc. rig count data showed a growing rig count in the basin. El Paso Permian next-day gas averaged $2.20, a gain of 16 cents on the day. Waha was up 13 cents to $2.22.
Meanwhile, Midcontinent prices also posted solid, double-digit gains given the hotter weather forecast on tap for this week. AccuWeather showed highs reaching the low to mid-90s in Oklahoma City throughout the week. In Des Moines, IA, temperatures are expected to top out in the mid-80s on Tuesday, but then soar to the mid-90s by Friday.
Northern Natural Ventura jumped 17 cents to $2.62, while Southern Star shot up 29 cents to $2.56. Panhandle Eastern traded at $2.44, up 23 cents on the day.
Farther north, several weather systems on tap for this week will lead to swings in demand, resulting in a mix of highs between the 60s to mid-80s for light heating or cooling needs, NatGasWeather said. Where the data has been hotter since last week is this coming weekend as a warm ridge sets up over the Midwest and Mid-Atlantic to add several CDDs/Bcf, although failing to trend hotter with it overnight or mid-day.
“Cooling was initially favored over the north-central” United States this weekend and early next week instead of now being focused over the west-central part of the country, the weather forecaster said.
Given the early-season heat, Algonquin Citygate spot gas surged 36 cents to $2.57, while Transco Zone 6-NY jumped 51 cents to $2.83. Tennessee Zone 6 200L was up 24 cents to $2.77, while Iroquois Waddington was up 21 cents to $2.78.
Appalachian pricing hubs started to recover from last week’s explosion-driven declines. Tennessee Zone 4 Marcellus next-day gas averaged $2.01, up 9 cents on the day. Dominion South climbed 15 cents to $2.26. Columbia Gas, which rallied on the explosion last week, managed to tack on additional gains of more than a nickel to average $2.80.
Meanwhile, California markets were sharply higher as above-average temperatures were forecast to linger for the next couple of days. AccuWeather showed highs in Los Angeles holding in the mid-80s through Wednesday before slipping to the mid-70s by Friday. Farther north in the state, daytime temperatures in San Francisco were expected to remain in the low 70s for most of the week before sliding to the upper 60s by Friday.
SoCal Citygate spot gas shot up 97 cents to $3.38, while Pacific Gas & Electric Citygate rose 14 cents to $3.01.