July natural gas prices were set to open a few pennies higher Thursday at $2.994 as weather models continue to intensify heat forecast for the end of June and early July.
Nymex July gas futures climbed as high as $2.998 but pulled back a tad before the market open. The strength came as overnight model guidance trended even hotter, and a stronger heat signal was seen through most of the medium range and into the long range, Bespoke Weather Services said.
“This finally fits with expectations, as agreement across models on very significant heat the first week of July has been quite strong,” Bespoke chief meteorologist Jacob Meisel said.
Heat is forecast to build in first across the center of the country before propagating east, and eventually the entire northern two-thirds of the country should see solidly above-average temperatures. More seasonal temperatures in the South may keep national cooling demand records from being broken, but recent model output indicate that gas-weighted degree days (GWDD) are at least close to past record levels, he said.
Bespoke said 15-day deterministic models do not yet show signs of the pattern breaking down, although long-term climate guidance does show a transition cooler into mid-July and upcoming weather guidance “may struggle to maintain heat this strong.”
Meanwhile, the market is also looking ahead to the Energy Information Administration’s (EIA) weekly storage inventory report. Estimates are pointing to a build in inventories in the mid-80s Bcf range for the week ending June 15. IAF Advisors’ Kyle Cooper projected an implied build of 86 Bcf and a headline build of 82 Bcf, while Bespoke estimated an 84 Bcf build. A Bloomberg survey had a range of 76-91 Bcf, with a median of 86 Bcf. A Reuters poll pointed to an 85 Bcf injection, with estimates ranging from 80-91 Bcf and a median build of 85 Bcf.
An on-target storage build would compare with a year-ago build of 63 Bcf and a five-year average build of 83 Bcf for the corresponding period. If correct, this week's build would boost stockpiles to 1,998 Bcf, the lowest for that week since 2014. That would be about 28% below the level in the same week last year and around 20% below the five-year average. In the week ending June 8, 96 Bcf was added to storage.
EBW Analytics said it is possible last week's much larger-than-expected injection could be reversed by a bullish surprise. “If this occurs, prices are likely to rise sharply.”
Meanwhile, even an on-target build would result in prices hit $3.05 again, Bespoke said. “Our estimate of 84 Bcf is now slightly below the consensus, and though we see most EIA estimates as quite bearish, a slight miss of the consensus combined with very bullish weather would likely send prices higher.”
Still, the strip and current balances indicate a market ready to turn as soon as GWDD losses arrive, “so any break of $3.05 would be brief and a test of $3.08-3.10 would be a strong shorting opportunity. But current forecasts are bullish enough for $3.00 to likely break,” Bespoke said.
On the production front, Genscape Inc. said it expects slight rebounds in production for the balance of this current week as a handful of Northeast and Rockies maintenance events wind down. On the demand side, it expects a moderate retreat in consumption due to most Midwest and Eastern demand market temperatures easing from early week highs.
Meanwhile, delivery nominations to the Sabine Pass liquefied natural gas (LNG) export facility rebounded to 2.9 Bcf/d for Thursday’s gas day. Late Wednesday afternoon, Genscape monitors and LNG clients were alerted of the operational change at Train 1, which showed decreased nominated deliveries for Wednesday’s gas day. The alert was issued before evening cycle nominations data was published and confirmed its observations.
Crude oil futures were trading 72 cents lower at $64.99, and RBOB Gasoline futures were trading fractionally lower at $2.0175.