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September Natural Gas Down, but Storage Concerns Remain Supportive; Spot Gas Marginally Higher

Ongoing concerns about having adequate storage supplies ahead of the winter season kept a firm floor under natural gas prices Monday, even as production was close to setting a new record and weather outlooks showed cooler temperatures in the days and weeks to come. The Nymex September gas contract settled at $2.93, down 1.4 cents on the day.

Spot gas prices, meanwhile, were mixed as stronger demand coming back from the weekend was met with weather forecasts showing two notable weather systems that were expected to bring showers and modest cooling to some regions. The NGI National Spot Gas Average slipped 2 cents to $2.90.

On the futures front, the Nymex September gas contract was down more than 3 cents ahead of Monday’s market open, but then bounced back to trade just fractionally lower than Friday’s $2.944 settle. From there, the prompt month dropped to a $2.897 low before bouncing back later in the morning and reaching an intraday high of $2.946.

As for weather, medium- and long-range forecasts remain relatively cool across the center of the country, but another “very supportive” Energy Information Administration (EIA) print was expected to be announced on Thursday, according to Bespoke Weather Services.

Early estimates from The Desk reflect an injection range between 17 Bcf and 42 Bcf, with a median of 32 Bcf and an average of about 31 Bcf. During the similar week last year, 49 Bcf was injected into storage, while the five-year average build stands at 56 Bcf.

As of Aug. 3, Lower 48 gas stocks stood at 2,354 Bcf, 671 Bcf below year-ago levels and 572 Bcf below the five-year average.

Meanwhile, two notable weather systems were set to open the week with showers and modest cooling. The first warm and wet system was forecast to stall over Texas during the next few days, then eject during the middle of the week, according to NatGasWeather.

A second cooler system was forecast to be over the east-central United States and was expected to be wet and slow moving. It was expected to remain hot over the West with temperatures forecast to reach the 90s and 100s, while the Southeast was forecast to be hot and humid with highs in the 90s. Later this week, hot high pressure was forecast to briefly rebound over most of the country for a swing to stronger demand; this is where the data was slightly hotter, NatGasWeather said.

Additional weather systems, however, are expected to find flaws in the upper ridge over the central United States during the Aug. 18-19 weekend, bringing another round of showers and modest cooling for a swing back to slightly lighter national demand; this data is a touch cooler compared to late last week, the weather forecaster said.

“Overall, the pattern is viewed as neutral due to numerous weather systems producing enough showers and cooling to prevent impressive widespread late summer heat” even though cooling degree days are expected to continue running slightly stronger than normal most days, NatGasWeather said.

Meanwhile, traders were also looking to production to start chipping away at the persistent storage deficit. Genscape Inc. said estimated production during the Aug. 10-11 weekend grew to 80.97 Bcf/d, about 0.8 Bcf/d above last week and month-opening levels, and within 2 MMcf/d of setting a record high.

“We see production is gradually recovering and weather-adjusted burns have again ticked looser, which, when combined with weather forecasts that should be unimpressive through the week, would seem to allow for increased downside. However, storage concerns remain the key focus, as seen with a more supportive strip today, and we cannot rule out one more rally into resistance from $2.98-$3,” Bespoke chief meteorologist Jacob Meisel said.

More than half of the production gains came out of Pennsylvania, supplemented by higher output in Ohio (up 0.17 Bcf/d versus month’s start), Texas (0.13 Bcf/d), the Permian Basin (0.12 Bcf/d) and the Midcontinent (0.12 Bcf/d), Genscape senior natural gas analyst Rick Margolin said.

Relative to the start of the month, only the San Juan Basin and the Rockies showed declines, the latter being primarily a product of a variety of maintenance events on both sides of the Continental Divide in the Denver-Julesburg, Piceance and Powder River basins.

Some of the supply gains, though, were being offset by lower imports from Canada, with current levels having dropped to some of the lowest levels this summer to date. Maintenance-induced restrictions limited Alberta exports, and this has occurred at the same time the province is pushing to refill storage inventories, which have been trailing the five-year average for most of the summer, Margolin said.

With deficits set to increase to near 600 Bcf after the EIA’s next storage report, the background state remains bullish, NatGasWeather said. “The onus clearly falls on record production proving it will soon reduce deficits instead of weather patterns needing to prove demand will be stronger than normal. Until this happens, we continue to expect any moderate selloffs will find buyers.”

Meanwhile, if production fails to put a meaningful dent in deficits during the fall shoulder season, it could set up a volatile winter season, the weather forecaster said. As of Monday’s settle, the winter strip sat at $3.058, up 3 cents from last Tuesday (Aug. 7).

Bespoke agreed a relatively strong futures strip could keep prices supported this week. Although looser balances easily put a $2.90 break in play for the September contract, the weather forecaster would need to see a bit more weakness along the strip to think any break is sustained, especially with short-term warmth allowing a bit more cash strength early in the week.

Generally, Bespoke sees risk skewed lower overall “but it may be hard to test the $2.85 support level in the next couple days without clearer daily loosening and/or weaker EIA data,” Meisel said.

Spot Gas Mixed On Localized Heat

Spot gas prices were mixed Monday as overall demand was projected by Genscape to ease a bit during the week as temperatures across much of the country were expected to recede closer to seasonal norms.

That said, the data and analytics company advised to “look for some regionally based action with well-above normal” temperatures forecast to start the week in the Midwest, and some heat to move into Northeastern markets by the end of the week.

On the national level, Genscape had power burns averaging about 35 Bcf/d through Sunday (Aug. 19), topping out for the week just shy of 37 Bcf on Friday (Aug. 17). “As a result, total Lower 48 demand is forecast to average 63.2 Bcf/d, about 3.7 Bcf/d below last week’s average,” Margolin said.

Liquefied natural gas exports were back up to normal following last week’s momentary trip at Cheniere Energy Inc.’s Sabine Pass Train 1, while exports to Mexico remain above the 5 Bcf/d mark.

Taking a look at Midwest spot gas markets, Chicago Citygate next-day gas recovered all of Friday’s losses as it jumped a dime to $2.93. Dawn was up 7 cents to $3.07, while points along the Rockies Express Pipeline were up about 6 cents on average.

Some pricing points in the Midcontinent also posted solid gains. ANR Southwest shot up 14 cents to $2.52, and Northern Border Ventura jumped 10 cents to $2.90.

In Texas, pricing hubs in East and South Texas shifted a few cents on the day, while El Paso Permian in West Texas/southeastern New Mexico plunged more than 10 cents to $1.90. Waha picked up 2 cents to hit $1.90.

Despite some cooling farther north on the West Coast, Malin next-day gas jumped more than 20 cents to $2.82, and Northwest Sumas climbed more than a dime to $2.65. In Southern California, SoCal Citygate tumbled $1.55 to $8.87 even as temperatures remain well above normal.

Northeast points were firmly in the black as pricing hubs posted stout, double-digit gains; regional prices ultimately averaged 23 higher at $3.33.

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