- June Nymex futures up 1.3 cents to $2.537; July up 1.3 cents to $2.573
- “The strength in the back of the curve was able to overpower the weakness in cash prices and keep the whole curve ‘green’ for the day,” says Bespoke
- “Without the emergence of more sustained hot weather in May, the start of the injection season is far from constructive”: Energy Aspects
- “There’s a window here where” bears could push prices “lower without having more of the demand stimulus to help push prices higher,” says INTL FCStone’s Saal
After driving prices lower the previous few sessions, natural gas bears took a break Tuesday as prices notched a small increase despite an uninspiring forecast. In the spot market, some springtime snow and chilly temperatures accompanied further gains in the Rockies as shoulder season conditions resulted in minimal day/day adjustments for most other regions; the NGI Spot Gas National Avg. added 6.0 cents to $2.205/MMBtu.
June Nymex futures picked up 1.3 cents to settle at $2.537 after trading as high as $2.556 and as low as $2.514. July also gained 1.3 cents, settling at $2.573, while August settled at $2.593, up 1.5 cents.
A “large drop” in production data Tuesday morning supported the buying, according to Bespoke Weather Services.
“While this will see some upward revision, it will likely remain a decent day/day drop,” Bespoke said. “The strength in the back of the curve was able to overpower the weakness in cash prices and keep the whole curve ‘green’ for the day.”
The fundamentals “look supportive” with prices under $2.55, but to take out the $2.55 level for the June contract will likely require a bullish catalyst, according to the firm, possibly in the form of stronger cash prices or “the market seeing increased risk of a bullish miss” from this week’s Energy Information Administration (EIA) storage report.
“Weather demand is above normal for the remainder of this week, though is still forecast to fall below normal next week and begin lagging last year’s levels again, as we are closing in on the time when last year turned very warm” and produced near-record levels of cooling degree days during the second half of May 2018, Bespoke said.
Energy Aspects issued a preliminary estimate for a 96 Bcf build from this week’s EIA storage report for the week ending May 3. That’s based on a 0.2 Bcf/d week/week drop in supply and a 1.4 Bcf/d week/week increase in power demand. The firm had been looking for a triple-digit weekly injection before a combination of heating and cooling demand “chipped away” at the expected build.
“Without the emergence of more sustained hot weather in May, the start of the injection season is far from constructive,” Energy Aspects said. “Indeed, weather forecasts suggest May could be a record-breaking month, potentially recording the top three storage injections of all time, or at least the second and third spot...Currently, we are seeing such strong builds without production even hitting the peak weekly readings seen in December.”
As of late last week, the firm shaved a few Bcf off of its projected end-May injection season balances, pointing to “short-term factors” including lower-trending production due to maintenance events. Recent liquefied natural gas (LNG) feed gas demand has also been higher, helped by growth in volumes headed for Cameron LNG.
“Power demand climbing nationally to its highest levels in a month, along with continued cash gas pricing near $2.50” helped push power burn to 24.5 Bcf/d last week, Energy Aspects said. “We expect a decline of at least 13 GW in May coal-fired power generation, one-third of which will be due to retirements (adjusted for capacity utilization) over the past year, with the rest due to coal-to-gas switching.”
The most recent Commitment of Traders data from the Commodity Futures Trading Commission showed professional speculators as a group liquidating length compared to the prior week, while commercial hedgers bought to cover short positions, all as prices rallied, according to INTL FCStone Financial Inc. Senior Vice President Thomas Saal.
That the market broke below long-term support at $2.50 late last month is “significant,” Saal told NGI. “The question is now that we’ve done that, are we treading lower? The short answer is yeah,” he said.
For now, without significant weather-driven demand to drive higher prices speculators could look for opportunities to sell, either liquidating long positions or adding new short positions, according to Saal. But the outlook could change.
“Everybody’s looking for hot weather. That will definitely increase demand, and then inventory levels will start to get smaller,” Saal said. “Because now there’s no significant demand to compete with the injection gas. With more retired coal units, demand could be high if the weather gets hot in most of the gas-consuming areas of the country. So it’s not like it’s just going to roll over and die here.
“There’s a window here where they could push it lower without having more of the demand stimulus to help push prices higher.”
Rockies Prices Climbing
Forecasts showing some cooler temperatures for parts of the northern and central United States and some hotter temperatures in the South did little to move the needle overall for spot prices Tuesday. Most regional averages finished within a nickel of even. Henry Hub finished flat at $2.540.
“Weather systems with heavy showers will continue across the central/south-central and northern U.S. this week with slightly chilly lows of 30s to 40s,” NatGasWeather said. “The Mid-Atlantic and East will be mostly comfortable with highs of 60s and 70s. The southern U.S. will see areas of heavy showers and thunderstorms but will remain warm with highs of 70s to lower 90s.
“Overall, light national demand will increase Wednesday through Sunday due to stronger cooling across the northern and central U.S., then easing back to light next week as the southern U.S. also cools.”
Rockies locations strengthened for a second straight day amid forecasts calling for below-normal temperatures in the region and even snow at higher elevations.
“The heaviest snow accumulations are likely to be above 9,000 feet, where the probability of receiving 12 inches of snow is greater than 50% in the ranges of central Wyoming and Colorado,” the National Weather Service said. “Temperatures will be well below average behind the front in the Rockies and Plains. High temperatures on Wednesday and Thursday may be as much as 25-35 degrees below average in the central High Plains from western Nebraska and eastern Colorado and western Kansas.”
In Canada Westcoast Station 2 saw a large day/day jump corresponding with an expected maintenance-related drop in production in the region this week. Prices at the hub surged C60.5 cents Tuesday to average C$1.330/GJ.
As Genscape noted last week, maintenance on Westcoast Energy Inc. is expected to cut 400 MMcf/d of production receipts starting Tuesday as the pipeline conducts a modernization project at Compressor Station 1 in northern British Columbia.
“The maintenance will require the McMahon and Aitken Creek plants to shut in for the duration of the five-day event ending on Saturday,” Genscape analyst Matt McDowell said. “McMahon averaged 411 MMcf/d in receipts onto Westcoast up until the eve of the maintenance; it dropped nearly 100 MMcf/d to 315 MMcf/d for Monday’s nominations.”
Meanwhile, West Texas prices mostly trended higher Tuesday as Natural Gas Pipeline Co. of America (NGPL) completed repairs on its system, resolving a restriction affecting flows out of the Permian Basin. Waha averaged 13.0 cents, up 2.0 cents on the day.
NGPL on Tuesday notified shippers that it has completed repairs at its Compressor Station 167 (CS 167) in Lea County, NM. The operator had declared a force majeure a day earlier due to horsepower issues at the station, which was the location of a similar force majeure event last week.
Genscape Inc. analyst Matt McDowell said CS 167 has seen three force majeure events in the span of a month.
“A series of short, one to two day issues have plagued the compressor station, limiting an average of 60 MMcf/d when compared to non-maintenance-restricted flows during the same period for each event,” McDowell said.
The restricted volumes have not been associated with increased nominations at interconnects unaffected by the restriction. “However, it is likely that the constrained molecules are instead making their way onto different pipelines via the gas processing plants in the area,” the analyst said.