Following minor changes to the weather outlook overnight, natural gas futures were trading slightly higher early Tuesday. The June Nymex futures contract was up 1.3 cents to $2.606/MMBtu at around 8:30 a.m. ET.
NatGasWeather viewed the overnight guidance as mostly unchanged, noting only “subtle adjustments” to the latest outlook.
“The coming pattern is still expected to result in light heating demand across the northern U.S. and slowly increasing cooling demand across the very warm southern U.S., but still to the bearish side bigger picture since the net result will be to continue the streak of larger than normal builds for at least another four weeks,” the forecaster said.
Breaking the current run of above-normal weekly storage injections will likely require “more ominous heat.” This is “forcing the markets to patiently wait out very large builds,” including potentially triple-digit injections for four of the next five reports, according to NatGasWeather’s estimates.
“If prices were to rally further, we don’t see weather patterns as being the primary reason behind it,” the forecaster said.
Energy Aspects issued a preliminary estimate for a 111 Bcf build for this week’s Energy Information Administration (EIA) storage report, noting that maintenance on the Agua Dulce compressor in South Texas impacted pipeline flows to Mexico during the period. Power burn levels were flat week/week, while weak heating demand led to a 2.6 Bcf/d drop in residential/commercial demand for the period, according to the firm.
Starting with Thursday’s EIA report, “our weekly balances are showing triple-digit injections for each week out to the week ending June 7...That is a significant departure versus last year, when the EIA reported a single triple-digit injection in the post-winter shoulder season,” Energy Aspects said. “Production has been on the rise, though it has not yet managed to eclipse the weekly record high for the Lower 48” because of numerous pipeline maintenance events throughout the country.
Power demand in April has been “lackluster,” according to the firm. For the major independent system operators, power demand has been trending about 10 GW lower year/year in April because of a “much milder start to the month” and an expected lack of cooling demand to close out the month.
“After lower-than-expected wind power generation growth most of the winter, the gains in installed wind capacity have finally turned into more renewable generation in April, further reducing the need for gas-fired power,” Energy Aspects said.
Wind generation gains have been particularly pronounced for markets in the Midcontinent. In the SPP (aka, Southwest Power Pool) and MISO (Midcontinent Independent System Operator) territories, wind generation in April has been up by a combined 3 GW year/year, according to the firm.
As for gas-fired generation, “we expect power burn to pick up into May” after cooling degree days “begin to accumulate, and due to gas prices falling at least 15 cents lower year/year,” encouraging additional coal-to-gas switching.
June crude oil was trading $1.03 higher at $64.53/bbl at around 8:30 a.m. ET, while May RBOB gasoline was up around 2.4 cents to $2.1065/gal.