With traders continuing to weigh strong production against the prospect of widespread heat lifting cooling demand in the weeks ahead, natural gas futures rebounded modestly Tuesday. In the spot market, gains in the Northeast and a price retreat in the Rockies and California headlined a day of mixed moves; the NGI Spot Gas National Avg. added 4.0 cents to $2.080/MMBtu.
After slipping 1.5 cents Monday, the August Nymex futures contract added 2.2 cents to settle at $2.425, trading in a range from $2.360 to $2.437. Gains were higher further along the strip. September settled at $2.416, up 3.2 cents, while October added 3.9 cents to settle at $2.454.
The latest data from the Commodity Futures Trading Commission (CFTC) suggests speculators, who have been selling aggressively, may be losing interest, INTL FCStone Financial Inc. Senior Vice President Tom Saal told NGI.
As a group, the net position for speculators (longs minus shorts) is approaching a historical low going back to 2014, according to Saal’s breakdown, which is based on the NG and NN Nymex futures.
“They’re reaching a historical level here, so you have to pay attention to it. Remember, they have to buy it to make a profit,” Saal said. “Last week they were net sellers, and yet the market rallied a little bit on them. That was probably a little bit unsettling for them.
“...That would tell me that we may be close to a bottom here,” that the next big move “may not be lower. And they’re already short by a lot.”
As for the hotter shift in forecasts over the past week, Saal said a run of smaller, sub-100 Bcf storage injections reported by the Energy Information Administration (EIA) could be a friendly development for the bulls.
“We’ll see if prices do react to the weather,” he said. “We’re in an era now where we’re seeing some new demand, and we’re seeing a lot of new production, so it’s kind of a tug-of-war.”
Radiant Solutions noted a “small cool change” in its latest six- to 10-day forecast Tuesday, but with the period continuing to show widespread above normal temperatures.
“This comes in response to remnant moisture associated with an earlier tropical system coming out of the Gulf of Mexico,” the forecaster said. “The details around this potential tropical system remain a point of uncertainty in the Eastern Half, where models differ in their temperature projections.”
The 11-15 day period should carry over “the broadly warmer than normal themes” from the six- to 10-day, Radiant said, adding that “changes from the previous outlook lean additionally warmer in the details. Widespread above normal coverage has agreement among” the models as of Tuesday. The forecaster cautioned that “unsettledness remains a concern for areas from the Midwest toward the East, along the periphery of a ridge.”
Last week’s rally may have forced some market players to “cover some weak short positions,” according to analysts with Drillinginfo.
“The fundamental indicators have changed with the forecasts but remain slightly bearish over the summer period,” analysts said. “Any rally in the coming weeks will have to work through the selling that will occur between $2.444 and $2.522, where the market broke down in late May. With the change in the fundamental forecasts, declines down to $2.30-2.263 will find buyers.
“The market remains range-bound, with a slightly negative bias. A break above $2.522 on a daily close will bring the bias to a neutral stature.”
Meanwhile, Gulf Coast residents should be on the lookout for possible tropical storm activity this week, as conditions point to an 80% chance of cyclone formation over the Gulf of Mexico (GOM) in the next five days and a 70% chance within 48 hours, the National Hurricane Center (NHC) said Tuesday.
As of Tuesday afternoon, a “broad low pressure system” had emerged over Apalachee Bay in the northeastern GOM, according to the NHC. “Environmental conditions are expected to be conducive for tropical cyclone formation and development over the next several days, and a tropical depression is likely to develop by late Wednesday or Thursday while the system moves westward across the northern Gulf of Mexico.”
Spot prices mostly held steady through the middle third of the Lower 48 Tuesday, including in the Gulf Coast, where some of the hottest temperatures in the country are forecast this week. Benchmark Henry Hub inched up 1.0 cent to $2.355.
Futures prices may have rallied over the past week, but recent weakness in the market led the Energy Information Administration (EIA) to lower its 2019 Henry Hub spot price forecast, included in its latest Short-Term Energy Outlook (STEO) published Tuesday.
EIA's forecast for all of 2019 is $2.62, a 15-cent decline compared with the previous STEO. The 2020 estimate is unchanged from the previous STEO, while the second half 2019 forecast represents a 29-cent decline.
"The lower forecast reflects recent price declines and EIA’s updated assessment of U.S. drilling activity and average well productivity," the agency said.
As for the near-term forecast, a surface low moving across the northern Plains and Great Lakes was expected to lead to severe weather and heavy rain, first over the northern Plains Tuesday before reaching the Great Lakes Wednesday and the Northeast on Thursday, according to the National Weather Service (NWS).
“Temperatures are expected to fall considerably behind the cold front trailing behind the surface low pressure system,” the NWS said. “Highs in the 70s are expected in the northern High Plains and Wyoming Tuesday, which shift into the northern Plains and Minnesota on Wednesday and Great Lakes Thursday.”
In the Southeast, Florida was expected to see pockets of heavy rain Tuesday, part of the GOM weather event that may develop into a tropical depression as the week progresses, according to the NWS.
“Outside of the system’s circulation, record warm low temperatures are possible across the Southeast/Gulf Coast within a hot and humid summertime air mass,” the forecaster said.
Northeast locations posted modest gains Tuesday as some warmer temperatures are settling over population centers in the region this week. Radiant Solutions called for Boston to see temperatures around 5-7 degrees warmer than normal through the end of the week, including a high of 86 for Wednesday.
Maintenance on Texas Eastern Transmission (Tetco) in New Jersey could cut roughly 150 MMcf/d of net receipts from Algonquin Gas Transmission starting Thursday and continuing until July 19, according to Genscape Inc. analyst Josh Garcia.
“From July 11-19, Tetco will conduct a pipeline outage between its Lambertville and Linden compressors in New Jersey,” Garcia said. “As a result, net receipts into Tetco from Algonquin will be limited to 350 MMcf/d for the duration of the outage. Net receipts have averaged 454 MMcf/d over the last two weeks and have maxed at 504 MMcf/d.
“This outage brings pressure for the Algonquin Citygate/Texas Eastern M3 spread to widen as M3 will be short supplied at the expense of Algonquin,” the analyst said. “The Northeast and especially New England are currently forecast to experience warmer than normal weather, adding bullish pressure to these demand zones.”
Elsewhere, with a restriction impacting Permian Basin flows through New Mexico scheduled to be lifted, West Texas prices strengthened Tuesday. Waha picked up 12.0 cents to average 39.5 cents, narrowing its substantial negative basis differential by more than a dime day/day.
A force majeure declared Monday at Transwestern’s Station 8 Compressor Station in Corona, NM, was restricting about 130 MMcf/d of outflows from the Permian Basin Tuesday, according to Genscape analyst Joe Bernardi.
Transwestern said in a notice to shippers it expected to restore the affected capacity by Wednesday’s gas day (July 10).
“A mechanical failure at one of Transwestern’s compressor stations moving gas west through New Mexico led to a roughly 250 MMcf/d operational capacity reduction through Station 9 at Roswell, NM,” Bernardi said. “Genscape-calculated flows through this point have averaged 615 MMcf/d in the previous 30 days, so the imposed operational capacity limit of 485 MMcf/d represents a cut of 130 MMcf/d versus that average.”
Further west, after posting gains Monday, Rockies and California prices mostly headed lower, though hotter temperatures are expected across the western part of the country later this week.
According to the NWS, “Increasingly hot temperatures are expected across the western United States with time...By Thursday, highs in the 90s will be commonplace, with 110s expected in the Desert Southwest.”