Natural gas futures bulls tried and failed to keep the recent rally going Tuesday, with prices easing lower as traders weighed late-season heat against an upcoming slate of potentially plump storage injections. The October Nymex contract settled 1.3 cents lower at $2.668/MMBtu after trading as high as $2.710 and as low as $2.628. November settled at $2.700, down 2.5 cents.
With demand over the next several days expected to remain relatively strong for this time of year, spot prices were steady across much of the Lower 48; the NGI Spot Gas National Avg. slid 2.0 cents to $2.370.
Tuesday turned out to be “quite a volatile session” as prices whipsawed back and forth a few times over the course of the day, observed Bespoke Weather Services.
“Most of the price action was simply following the trends in the cash market,” although balances, including lower production and an increase in exports to Mexico, appeared to strengthen Tuesday, according to Bespoke. Liquefied natural gas (LNG) feed gas demand “also returned back close to its highs, with an increase in Canadian imports being the only factor on the bearish side of the ledger.
“...The balance data and continued strength in cash makes us feel there is more downside risk versus upside at these price levels,” the firm said. “Higher wind may ease gas burns more, and a lot of rain in Southeast Texas” could take out “a chunk of demand in the Houston area the next couple of days. In addition, continued warmth will gradually evolve bearish as we move into the month of October.”
Looking at balances, Energy Aspects said its estimates show “stout” storage injections starting with the week ending Sept. 27.
“While our forecasts for storage injections have shifted since mid- to late-August on the warmer forecast (and realized) weather, our projected end-October inventory is near 3.76 Tcf, not a level that should induce gas rationing nor point to anything that suggests tight fundamentals,” the firm said in a recent note.
Forecasts showing “an extension of hot summer weather into September” have provided the catalyst for “a positioning-led rally. Indeed, that sharp move up has occurred against fundamentals that are somewhat tighter...but not particularly tight in the grand scheme of things.”
On the demand side, the start of commercial operations on the Sur de Texas-Tuxpan pipeline has coincided with a spike in exports to Mexico, according to Genscape Inc. The firm estimated Mexico exports at 5.9 Bcf/d for Tuesday.
“Sur de Texas is reporting it is scheduled to flow over 0.6 Bcf/d of gas received from South Texas,” Genscape senior natural gas analyst Rick Margolin said. “This comes just a few weeks after the pipe’s developers -- TC Energy and IEnova -- reached an accord with the Mexican government to initiate operation.”
The higher flows on Sur de Texas-Tuxpan have also coincided with a “notable drop” in LNG sendout from Mexico’s Altamira LNG terminal, Margolin said.
As markets continued to weigh the potential ramifications of an attack over the weekend targeting Saudi Arabian oil infrastructure, crude prices reversed sharply lower early Tuesday. The October West Texas Intermediate contract on Nymex traded as low as $58.50/bbl before going on to settle at $59.34, down $3.56 day/day.
News of the attack in the Middle East, one of the largest geopolitical supply disruptions in the region in decades, rocked markets one day earlier, sending WTI futures soaring north of $63 Monday after trading in the mid-$50s last week.
After Saudi officials released more information Tuesday about the timeline for bringing affected production back online, Evercore ISI analysts characterized the disruption as “meaningful but manageable.”
“The supply disruption covered 60% of oil, 20% of natural gas” and 50% of natural gas liquids output from Saudi Arabia, “so it was obviously meaningful,” the Evercore analysts said. Based on information provided Tuesday by Saudi officials, “production is recovering, with pre-incident output (9.8 million b/d) expected by the end of September. Restoring production capacity to 12.5 million b/d appears likely to take months, although the market is unlikely to need the additional supply during this period, in our view.”
Exploration and production (E&P) companies “will surely hedge recent gains to the degree possible,” the Evercore team said. But “higher potential cash flows are unlikely to lead to significant gains in spending.”
Spot prices in Texas traded close to even Tuesday as Tropical Storm Imelda made landfall near Freeport, TX, shortly after forming in the Gulf Coast. The National Hurricane Center warned that “heavy rainfall and threat of flash flooding will spread inland,” with the storm expected to track north through early Wednesday before following a north-northwestward motion Wednesday night and Thursday.
The heavy tropical rains along the Texas coast are likely to bring cooler temperatures, an exception to the warmer-than-normal pattern forecast across the southern United States over the next few days, according to NatGasWeather.
“There’s not a lot of area impacted, but where it does will lead to localized flooding as some areas could see rainfall reach or exceed 7-12 inches,” the forecaster said. “If flooding hits the right spots, it could lead to some production, flow or LNG issues.”
For areas not impacted by Imelda, “unseasonably strong hot high pressure continues across Texas and the South with highs of 80s to 90s for strong late season demand,” NatGasWeather said. “...It’s also very warm across the central U.S., although cooling into the 70s to mid-80s during the second half of the week. Weather systems with showers continue into the West with highs of 50s to lower 70s besides the hotter Southwest.”
Temperatures should remain comfortable over the next several days from the Midwest to the East for lighter demand, according to the forecaster.
Based on a warmer temperature outlook since last Friday, Genscape said it has “moderately” increased its Lower 48 demand expectations for the next two weeks.
“We are now expecting demand through September 30 to average 69.1 Bcf/d, peaking next Tuesday at 72.15 Bcf/d,” Genscape’s Margolin said. “The current 14-day outlook is about 1 Bcf/d greater than our forecast for the same dates” as of late last week.
Since last week, Genscape has increased its demand projections for the work week starting next Monday by 3.15 Bcf/d.
Elsewhere, maintenance appeared to be putting downward pressure on prices at several Rockies locations Tuesday. Cheyenne Hub fell 25.5 cents to $1.850, while CIG DJ Basin plunged 52.5 cents to $1.375.
CIG (aka Colorado Interstate Gas) notified shippers of planned maintenance for Tuesday and Wednesday at the Cheyenne Compressor Station, impacting flows through the “Dover to Weld County Lat” and “Cheyenne Jumper HP” segments.
“These points have averaged nearly 570 MMcf/d during the last 30 days,” Genscape analyst Matthew McDowell said. “This could put downward pressure on Cheyenne Hub spot prices as supply struggles to find alternative paths out of the region.”