• August Nymex futures up 6.1 cents to $2.312; September up 6.5 cents to $2.293
  • U.S. production returning to near pre-Barry levels, says Genscape
  • Mexico’s IPGN monthly natural gas price index in June averages $2.783/MMBtu

In contrast to last week’s heavy sell-off, U.S. natural gas futures rallied Monday on the promise of additional heat arriving later this month. Meanwhile, hotter temperatures helped spark strong spot price gains for much of California and the Rockies; the NGI Spot Gas National Avg. climbed 6.5 cents to $2.075/MMBtu.

The August Nymex futures contract climbed 6.1 cents to settle at $2.312 after trading as high as $2.322. September settled at $2.293, up 6.5 cents, while October gained 6.3 cents to $2.319.

“Hotter weather trends are the main catalyst for the move higher, although we suspect that balances can improve as well later this week as wind subsides from its recent high levels,” Bespoke Weather Services said. “While cooler windows can mix into the weather pattern, we favor a hotter than normal overall skew into the balance of the summer season, helping to support natural gas prices, at least allowing the $2.25 support level to hold.”

Guidance as of Monday suggested that cooler conditions this week could simply be a “cooler period mixed in the background hotter-than-normal base state, as the forecast has shifted hotter beyond this week. The heat is more focused in the northern half of the nation based on the latest modeling, but that is still enough to send demand back to above normal levels as we end the month of July and head into August.”

Looking back at last week’s sell-off, which saw the front month drop around 20 cents compared to the previous week, analysts at Drillinginfo noted that once resistance held around $2.49 it “opened the door for a retest of support” from $2.30 down to $2.263.

“The market seems to imply that another test of the June low at $2.15 is underway, but whether that test will be during the August prompt or the September prompt is undecided,” the analysts said. “...The fundamentals to trade remain bearish and have been consistently bearish throughout the summer. Weather forecasts have changed and show above-average temperatures promoting higher power demand in certain regions over the next couple of weeks.

“...Any rally in the coming weeks will have to overcome the selling at $2.49, as witnessed previously, and is unlikely before the August contract expiration. Should the market continue its declines, it will find buyers at $2.15 down to $2.101.”

On the supply side, Lower 48 dry gas production has rebounded to only slightly below levels observed prior to Hurricane Barry’s formation over the Gulf Coast earlier this month, according to Genscape Inc.

“Our daily estimate of production this weekend hit 89.4 Bcf/d on Saturday,” Genscape senior natural gas analyst Rick Margolin said. “This was just 0.84 Bcf/d below the seven-day average registered prior to the arrival of Barry. Total Gulf region output still lags pre-storm levels, but that delta is narrowing on a daily basis. Barry is still having lingering impacts on Gulf of Mexico production.

“Although the storm strength was relatively low, the storm path through mid- and eastern offshore Louisiana caused significant impacts, as it led the storm through a very concentrated area of production.”

Genscape’s estimates as of Monday showed about 555 MMcf/d of production shut-ins, down from around 650 MMcf/d Sunday.

Meanwhile, on the demand side, developers of the Freeport liquefied natural gas (LNG) export terminal announced Monday that the project has officially reached the final commissioning stage, including the introduction of feed gas into Train 1 at the facility, located on the Texas Coast at Quintana Island. Once fully operational, Freeport Train 1 will be capable of producing over 5 million tons per year of LNG.

Hot West, Cooler East

Spot prices soared across much of the Rockies and California coming out of the weekend break as forecasts showed hotter temperatures focused over the nation’s southwestern quadrant.

This week “hot high pressure will shift over the West with highs of upper 80s to 100s, hottest over the Southwest into West Texas,” according to NatGasWeather.

Gains were especially pronounced in Southern California, where SoCal Citygate jumped $1.540 to average $3.715.

Radiant Solutions was calling for highs in Burbank, CA, to climb into the mid-90s for Tuesday and Wednesday. Southern California Gas estimates showed system demand ramping from around 2 million Dth/d on Sunday to over 2.3 million Dth/d Tuesday and Wednesday.

Elsewhere in the region, SoCal Border Avg. surged $1.210 to $3.190, while further upstream Kern River jumped 40.0 cents to $2.280.

Contrasting the heat in the west, forecasts Monday showed cooler conditions moving in over regions further east following an oppressively hot weekend for much of the country.

“The dangerous heat wave which enveloped much of the Midwest to the East Coast is finally breaking...as a front drops southward across parts of the East,” the National Weather Service said Monday. “Showers and thunderstorms will accompany this boundary from the Northeast to the Southern Plains with heavy to excessive rainfall and severe weather possible.

“...This boundary will usher in a much appreciated cooler air mass, with most of the country east of the Rockies” expected to see below average temperatures.

Spot price moves were generally modest for most regions east of the Rockies Monday, with the Northeast a notable exception. Prices there sold off sharply with the mercury dropping.

Algonquin Citygate tumbled 39.0 cents to $2.165, while Transco Zone 6 NY dropped 20.0 cents to $2.065.

Elsewhere, prices were steady in Louisiana, while a handful of East Texas locations saw double-digit gains. Katy rose 12.5 cents to $2.335.

Mexico Roundup

Mexico’s IPGN monthly natural gas price index averaged $2.783/MMBtu in June, the lowest average recorded since the Comisión Reguladora de Energía (CRE) began publishing the index in July 2017.

The price was down from the May average of $3.001/MMBtu, reflecting a drop in U.S. gas prices, to which a majority of transactions in Mexico are indexed.

The Henry Hub spot price averaged $2.40/MMBtu in June, down from $2.64/MMbtu in May.

Twenty-one marketers in Mexico reported 238 transactions in June for a total volume of 6.282 Bcf/d. This compares to 23 marketers in May reporting 296 deals for 5.728 Bcf/d.

Meanwhile, the International Monetary Fund (IMF) lowered its 2019 growth forecast for Mexico on Tuesday to 0.9%, from 1.6% forecast in April. The IMF said the revision reflects “policy uncertainty, weakening confidence, and rising borrowing costs, which could climb further following the recent sovereign rating downgrade.”