Rebounding somewhat following a steep sell-off driven by a larger-than-expected inventory build this week, natural gas futures were trading slightly higher early Friday. The July Nymex futures contract was up 2.5 cents to $2.210/MMBtu shortly after 8:30 a.m. ET.
The overnight weather models shifted cooler in the 11-15 day period, showing the upper level ridge moving westward during the period and lowering forecast temperatures for the eastern United States for the start of July, according to Bespoke Weather Services.
“The trough is weak enough that overall demand in the back of the 11-15 day is still near normal,” Bespoke said. “The El Nino state remains, so our view remains that sustained heat versus normal will be tough to come by, but the pattern doesn’t appear likely to go decisively cooler than normal either, leaving us with a lot of variability and ultimately a pattern that doesn’t stray too far from normal when averaged out.”
Meanwhile, futures sold off sharply Thursday after the Energy Information Administration (EIA) reported a bearish 115 Bcf injection into storage inventories for the week ending June 14. The reported build compares with last year’s 95 Bcf injection and the 84 Bcf five-year average build.
At 2,203 Bcf, inventories are 209 Bcf above last year’s levels and 199 Bcf below the five-year average.
Compared to degree days and normal seasonality, Genscape Inc. viewed the print as around 2.1 Bcf/d loose versus the five-year average.
Tudor, Pickering, Holt & Co. (TPH) analysts said the 115 Bcf print adds to “negative momentum” for the macro natural gas outlook, implying the market was about 3 Bcf/d oversupplied after adjusting for weather.
“Every injection so far this year (11 weeks and counting) has come in above the five-year average, adding an incremental 340 Bcf to storage relative to five-year norms,” the TPH team noted. Looking at recent liquefied natural gas trends, “Corpus Christi feed gas volumes hit a record 1.3 Bcf/d this week, potentially related to commissioning of Train 2. However, volumes at Cameron have been soft since the initial commissioning cargo, with speculation of mechanical issues beginning to emerge,” they said of Sempra Energy’s LNG terminal in Louisiana.
“In a sea of negative data points, one small positive for the macro this week is the force majeure on the 2 Bcf/d Alliance Pipeline that delivers Canadian gas into the MIdwest,” the TPH analysts said. “The four-day complete shut-down has reduced net imports from Canada by around 1 Bcf/d and will shave 4 Bcf off next week’s storage print.”
Looking at the technicals, Thursday’s sell-off saw the front month drop below the 50% monthly break-down target at $2.220 identified in INTL FCStone Financial Inc. Senior Vice President Thomas Saal’s monthly market profile. That’s based on a monthly initial balance between $2.305 and $2.475.
According to Saal’s latest profile, which takes a longer-term focus, from here prices could test the 100% break-down target at $2.135. Eventually, though it could take some time, the market may look to test May’s monthly value area between $2.546 to $2.634, according to Saal.
August crude oil futures were trading 29 cents higher at $57.36/bbl just after 8:30 a.m. ET, while July RBOB gasoline was up about 6.8 cents to $1.8538/gal.