Supportive heat near the back-end of the 15-day outlook helped lift natural gas futures several cents higher in early Thursday trading as the market prepared to turn its attention to the latest government storage numbers. The September Nymex futures contract was up 4.1 cents to $2.124/MMBtu shortly after 8:30 a.m. ET.
A week after the Energy Information Administration (EIA) reported a build that beat consensus by more than 5 Bcf and came in nearly 30 Bcf higher than the five-year average, the agency is expected to deliver more unsupportive data on Thursday.
Estimates have been pointing to an injection in the high 50s Bcf range. As of Wednesday, a Bloomberg survey of 10 analysts ranged from a 55 Bcf to 63 Bcf build with a median of 59 Bcf. NGI also projected a 59 Bcf injection. Intercontinental Exchange EIA Financial Weekly Index futures settled Wednesday at 61 Bcf.
By comparison, the EIA reported a 46 Bcf injection last year, and the five-year average stands at 43 Bcf.
For this week’s report period, “it was hotter than normal over the Northeast and most of the West and Texas, while cooler than normal across the east-central and southeastern U.S.,” NatGasWeather said. “Our algorithm predicts a build of 59 Bcf, in line with expectations.”
As for the overnight weather data heading into Thursday’s trading, the forecaster said changes were mixed, including slightly cooler trends in the Global Forecast System and warmer trends in the European model.
“The data overall wasn’t hot enough through Aug. 18 due to bouts of cooling across the northern U.S. but still favors increasing heat Aug. 19-23 as hot high pressure builds across the northern and eastern U.S. with highs of upper 80s to 90s gaining in coverage,” NatGasWeather said. “No change to our view, as the back end of the 15-day forecast is likely to be considered hot enough. But how long will it last?”
There’s potential for upcoming data to expose “flaws” in the hot ridge around Aug. 25-28 because of “weather systems over Canada advancing into the northern U.S.,” the forecaster said. “This could change in time, but the onus is on the hot camp proving widespread heat will arrive and, more importantly, last if weather sentiment is to be considered bullish.”
Bulls are getting little support from the supply side of the market, with production continuing to surge. Genscape Inc.’s estimates show Lower 48 supply growth outpacing expectations month-to-date.
“Our August projection for Lower 48 production was 90.43 Bcf/d, but our daily scrape model is already running nearly 0.37 Bcf/d higher and has run as high as 91.55 Bcf/d,” analysts Eric Fell and Rick Margolin told clients early Thursday. “Production may be even higher than what our daily model is suggesting as storage injections continue to come in higher” than the firm’s supply and demand modeling would suggest on average.
“On the demand side, power burns and exports to Mexico” via liquefied natural gas (LNG) “are all hitting new record highs, but that hasn’t been enough to pace supply growth. Heat in the Midwest, Pacific and South Central regions has generated about 2.8 Bcf/d more power burn than our weather-normal forecast.
“However, the recent shutdowns of LNG trains at Sabine and Corpus Christi have lopped off about 1.8 Bcf/d of LNG demand, and the industrial sector demand is underperforming our forecast by about 0.6 Bcf/d.” The net result is balances remain loose and injections continue to overshoot the five-year average.
“On a weather-adjusted basis, injections have averaged 2.6 Bcf/d higher than the five-year average over the last three months,” Fell and Margolin said. “With this we see prompt month prices testing lows not registered in at least the past 40 months.”
September crude oil futures were up $1.17 to $52.26/bbl shortly after 8:30 a.m. ET, while September RBOB gasoline was trading around 2.1 cents higher at $1.6410/gal.