September natural gas futures were set to open Friday close to even at around $2.965/MMBtu, with overnight forecasts maintaining similar themes as the market continues to shrug at stockpiles sitting at their lowest level in years.
Guidance overnight continued to advertise medium-range cooling thanks to a few cold fronts moving across the country, but with “solid heat” holding in the long-range, according to Bespoke Weather Services.
“The September natural gas contract bounced overnight just a tick below our $2.98 level before reversing...as cash prices were weaker yesterday and medium-range forecasts have cooled some,” Bespoke said. “We note that balances on a daily basis continue to run loose and point to a much larger injection next week...This has continued to help strengthen resistance and should keep $2.98-3 firm into the weekend even after yesterday’s more supportive” Energy Information Administration (EIA) “print and with long-range heat lingering.”
The EIA reported a 48 Bcf build into storage inventories for the week ending Aug. 17, right on target with some market participant surveys, although several estimates clustered in the 50 Bcf range as well. As of Aug. 17, stocks sat at 2,435 Bcf, 684 Bcf below year-ago levels and 599 Bcf below the five-year average of 3,034 Bcf, EIA said.
“Weather-adjusted, the market returned to being undersupplied (1.0 Bcf/d) despite U.S. production ramping 600 MMcf/d week/week,” analysts with Tudor, Pickering, Holt & Co. (TPH) said of this week’s storage report. “Undersupply is set to persist as warmer-than-normal temperatures remain in the forecast.” Liquefied natural gas exports “remain volatile and the outlook is unclear as U.S.-China trade war chatter continues.
“The storage trajectory implies exiting injection season near five-year minimums,” but approval Thursday by the Federal Energy Regulatory Commission for “in-service of the Rover supply laterals raises the potential for a ramp in U.S. production that “may somewhat mitigate thoughts of a winter pricing spike,” TPH analysts said.
As the market continues to shrug at large inventory deficits to year-ago and five-year levels, it could be setting itself up for volatility during cold weather events this winter, Genscape Inc. senior natural gas analyst Rick Margolin said.
“Around mid-July, current year inventories began setting the low mark for the five-year range, and now stand at their lowest levels for this date since at least 2009,” Margolin said. “Yet, despite the series of small injections reports and persistently low inventories, forward curves for the winter continue to struggle to print even a $3 handle as the market is placing higher confidence on supply growth picking up the slack.
“To be sure, Genscape’s SpringRock production forecast is calling for production this winter to add more than 3 Bcf/d above summer’s levels, and more than 6.2 Bcf/d above last winter,” he said. “But individual region and field inventories running deficits increases volatility exposure during cold weather events that spike demand and/or trigger upstream supply disruptions like freeze-offs.”
October crude oil was set to open about 79 cents higher at around $68.62/bbl, while September RBOB gasoline was trading about 1.4 cents higher at around $2.0736/gal.