• July futures drop 7.7 cents to $2.547; August off 7.5 cents to $2.557
  • EIA print significantly overshoots estimates at 114 Bcf; “I think it’s the timing of the heat that threw off the number,” says Enelyst’s Shah
  • Mexico president says he does not want trade “confrontation” with U.S., sends minister to Washington, DC

A large bearish miss in the latest U.S. government inventory data and forecasts showing underwhelming levels of June cooling demand had natural gas futures bulls in retreat Thursday.

In the spot market, Midcontinent and West Texas prices clawed their way higher as much of the eastern two thirds of the Lower 48 saw modest declines; the NGI Spot Gas National Avg. added 2.0 cents to $2.080/MMBtu.

The Nymex July futures contract settled at $2.547, down 7.7 cents after venturing as low as $2.534. Selling was of a similar magnitude further along the strip. August dropped 7.5 cents to settle at $2.557, while September settled at $2.549, off 7.4 cents.

The bears may have been waiting for the June contract’s expiration Wednesday, as they “quickly pounced right at expiration time and haven’t looked back,” observed NatGasWeather.

Adding to the bearish momentum that had developed in the market overnight, the Energy Information Administration (EIA) on Thursday reported a much larger-than-expected 114 Bcf injection into U.S. natural gas stocks.

The 114 Bcf build, reported for the week ended May 24, overshot estimates by a wide margin, and the number easily tops both the 95 Bcf build recorded in the year-ago period and the five-year average 97 Bcf injection.

Prior to the EIA report, consensus had formed around a build in the high 90s to low 100s Bcf. A Bloomberg survey had pointed to a median prediction of 98 Bcf, based on estimates ranging from 94 Bcf to 104 Bcf. The 114 Bcf figure topped even the highest estimate submitted to this week’s Reuters survey, which had called for a 101 Bcf injection based on a range from 91 Bcf to 110 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled Wednesday at 100 Bcf, while NGI’s model predicted a 98 Bcf build.

During a weekly natural gas storage chat on Enelyst, Het Shah, managing director for the platform, called it “quite the bearish print. Next week is bound to be a mess as well with the long weekend.”

Shah pointed to the Midwest and South Central regions as the areas where estimates missed the mark this week.

“I think it’s the timing of the heat that threw off the number,” Shah wrote. “This late-May heat resembled something we’d see in late June.”

Total Lower 48 working gas in underground storage stood at 1,867 Bcf as of May 24, 156 Bcf (9.1%) higher than year-ago levels but 257 Bcf (minus 12.1%) below the five-year average, according to EIA.

By region, EIA recorded a 35 Bcf build in the Midwest and a 30 Bcf injection in the East. Further west, the Mountain region refilled 4 Bcf for the week, while 12 Bcf was injected in the Pacific.

The South Central region posted a 31 Bcf weekly build, including 27 Bcf injected into nonsalt and 4 Bcf into salt stocks, according to EIA.

NGPL Midcon Rebounds

Perhaps getting a lift from the expected conclusion of maintenance work that’s been limiting northbound flows on the Natural Gas Pipeline Co. of America (NGPL) system, prices strengthened in the Midcontinent and further south in the Permian Basin Thursday.

Coming off record-low negative prices late last week and earlier this week, NGPL Midcontinent rebounded sharply in trading Thursday, adding $1.160 to average $1.170.

To explain the extreme weakness observed in NGPL Midcontinent prices the past few days, Genscape Inc. analyst Matthew McDowell pointed to “inter-basin competition between associated gas volumes from NGPL’s Anadarko basin molecules and NGPL’s Permian receipts fighting for limited space on the pipe.”

The force majeure declared last week at Compressor Station (CS) 194 in Ellsworth County, KS, has cut about 600 MMcf/d of flows bound for Midwest markets via NGPL’s Amarillo Mainline, McDowell said.

“The 1.3 Bcf/d Amarillo Mainline has been the primary source of takeaway capacity from the Permian and Anadarko basins since a pipeline remediation force majeure separated NGPL’s TexOK zone from the Midcontinent zone,” the analyst said. “This reduced east-bound Midcon flow toward the Gulf Coast Mainline to zero since the beginning of April and routed NGPL Midcon production toward the Amarillo Mainline to the west.”

The CS 194 force majeure was expected to conclude by Friday, according to a notice issued earlier in the week by NGPL.

“...There is the possibility of more maintenance-restricted price volatility if the force majeure-prone Amarillo Mainline compressors continue to have issues,” McDowell said.

As for the force majeure separating the Midcontinent and TexOK zones, NGPL said it now expects the restriction to continue through June 5, instead of through Friday as previously stated. The operator cited “extreme weather-related conditions, including severe flooding in the repair area.”

In West Texas, the recent epicenter of negative spot prices in the U.S. market, locations continued to see improvement Thursday following another foray deep into the red coinciding with the NGPL CS 194 disruption. El Paso Permian averaged minus 2.0 cents, up 65.5 cents day/day.

Elsewhere, prices mostly saw discounts throughout the Gulf Coast, Midwest, East Coast and Appalachia Thursday. Benchmark Henry Hub slid 10.0 cents to $2.525.

Mexico Roundup

The Mexican peso slumped 3% on Thursday after President Trump threatened  tariffs on all goods imported from Mexico. Trump tweeted that beginning June 10, “the United States will impose a 5% tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied.”

Mexico President Andrés Manuel López Obrador responded in a letter on Thursday that he “didn’t want a confrontation” and would send his foreign minister to Washington, DC, to resolve the issue.

A trade war between the United States and Mexico could have serious implications for energy trade, particularly U.S. refiners. Mexico is the fourth largest crude supplier to the United States at about 600,000 b/d.

The United States currently exports refined products and about 5.4 Bcf/d of natural gas to its southern neighbor via pipeline.