After bearish weather outlooks and a massive storage injection sent natural gas futures prices to three-year lows last week, prices were set for a modest rebound early Monday. The July Nymex gas futures contract was trading 1.2 cents higher at about $2.35 at 7:45 a.m. ET.
The odds of natural gas rebounding sometime in the next week or two are reasonably high, according to EBW Analytics. “Prices often rise seasonally heading into mid-summer. Demand will increase significantly over the next few weeks and injections will begin to shrink.”
Current weather forecasts, however, call for a mild start to the summer, which leaves open the potential for significant further losses if July and August disappoint, the firm said. The weekend weather data maintained a rather unimpressive pattern through mid-June, but some of the models continues to tease hotter patterns trying to gain in coverage the last 10 days of the month, according to NatGasWeather.
“However, the important European model is not one of them and remains to the cooler side, which we believe will prevent the natural gas markets from believing hotter patterns are to be expected,” the firm said.
Statistically, the Global Forecast System data lost three total degree days (TDD) compared to Friday’s data and the European model lost four, a small amount, “although the fact they didn’t gain TDDs/trend hotter is what’s most important and will be viewed as a disappointment,” according to NatGasWeather. With the weather data failing to trend hotter, larger-than-normal storage builds should be expected to continue into late June, further improving deficits toward 200 Bcf after being 720 Bcf this past winter.
Last week, the Energy Information Administration stunned the market with the second consecutive much larger-than-expected storage injection. Ahead of the report, the prompt-month Nymex contract had held above $2.40, but the bearish report sent prices to the low $2.30 range, a level they held on Friday.
It is important to consider the impact of falling comfortably below the $2.50 mark, and how long it may take for this to translate to tighter supply/demand balances, Mobius Risk Group said. A high-level look at unconventional drilling era history has shown that in any six-month period where this occurred, there was a subsequent fundamental response, which led to both increased demand and decreased supply.
“It is decidedly unclear how long we will stay below $2.50 this time around, however, it is worth noting that late May and early June are not ideal times to extrapolate looseness in overall Lower 48 supply/demand balances,” Mobius said.
That said, a weight is likely to remain on the front of the curve until the streak of triple-digit storage builds ends, “and it is difficult to ascertain when that is most likely to occur with weather forecasts continuing to favor a bearish pattern, and confusion regarding the accuracy of modeled estimates of daily storage data.”
Crude oil futures were trading at $54.25/bbl, up 26 cents from Friday, and RBOB gasoline futures were trading at $1.742/gal, up about three-tenths of a cent.