Natural gas futures bounced around a bit on Friday, but ultimately capped the week on a soft note despite some slight tightening in supply/demand balances. The June Nymex gas futures contract settled at $1.646, down 3.5 cents from Thursday’s close. July fell 5.1 cents to $1.833.
Spot gas prices were mostly higher, but gains were relatively small. NGI’s Spot Gas National Avg. climbed 6.0 cents to $1.475.
On the futures front, prices opened Friday’s session less than a penny lower day/day but then caught a bid and hit an intraday high of $1.732. From there, however, prices fell as the overall picture remains bearish for the near term.
Although production shaved off another 0.5 Bcf day/day and liquefied natural gas (LNG) feed gas deliveries bumped up a bit, demand remains largely in the doldrums amid ongoing Covid-19 shutdowns. Although some local economies have started to reopen, a meaningful recovery remains elusive.
Still, the latest government storage data did show some tightening in the supply/demand balance. The Energy Information Administration (EIA) reported Thursday that inventories for the week ending May 8 rose by 103 Bcf, which came in close to last year’s 100 Bcf build but was well above the 85 Bcf five-year average injection.
Genscape Inc. senior natural gas analyst Eric Fell said the EIA figure appears loose by approximately about 3.8 Bcf/d versus the prior five-year average when compared to degree days and normal seasonality. While 3.8 Bcf/d is still “very loose” versus normal, it was once again tighter than the previous week and around 5 Bcf/d tighter than the all-time record loose injection from the prior four weeks, which came in nearly 9 Bcf/d loose.
Rapid production declines over the last few weeks have been tightening supply/demand balances, according to Genscape, with the firm’s daily pipe flow models showing production down around 4 Bcf/d in the most recent week versus the week ending April 16.
“Production declines are being driven by both structural factors (steep declines in rig counts and well completions) as well as crude production shut-ins,” Fell said.
Genscape’s production team estimates around 2 Bcf/d of associated gas for every million barrels per day of oil, while EIA estimates are showing U.S. crude production down around 1.5 million b/d versus the peak in mid-March.
“Not surprisingly, the biggest production declines are occurring in the oil/liquids rich areas in the South Central and Mountain regions,” Fell said.
The analyst noted, however, that many oil/liquids-rich areas also happen to be where Genscape’s observable sample of pipeline data is significantly obscured by a heavy presence of intrastate pipelines, “which means that our daily gas production models in these areas are prone to larger modeling errors.
“This also means that actual production declines could wind up being even larger than what daily pipe flow models are suggesting,” Fell said.
Production declines notwithstanding, demand -- or the lack of it -- is likely to remain at the forefront of the gas market for the next couple of weeks. While shutdowns are still prevalent across the country amid the coronavirus pandemic, weather also is doing little to provide any increase in gas demand.
NatGasWeather said the latest weather data held cooler trends over the East for the next few days but maintained an exceptionally bearish pattern for the eight- to 15-day period as there is expected to be limited coverage of 90-degree highs. The firm believes widespread highs of 90s is what is required to flip bearish weather headwinds to bullish.
“The primary issue is the southern United States isn't expected to get hot enough due to weak weather systems that prevent upper high pressure from reaching strong enough levels to produce widespread heat,” NatGasWeather said. “We continue to expect widespread heat won’t arrive until around the start of June at the earliest, keeping bearish weather headwinds intact until then.”
Although there were small improvements in balances on Friday due to the further drop in production and small bump in LNG demand, Bespoke Weather Services said “it’s not enough so that we feel there is a material lessening of the risk that we completely fill storage this fall. That is what we need to see in order to allow for a sustainable rally at the front of the curve.”
That doesn’t mean prices just keep plunging, however. The firm has noted that time and again the market finds support in the $1.55-1.60 zone for prompt-month pricing. With the June contract just a few cents above that level, it may be difficult to push prices significantly lower from here unless there is some “powerful” new bearish data, or a cratering of cash prices.
“Filling storage, of course, would bring such a collapse, but that is still far enough into the future so that it would seem unlikely, at least right here and now,” Bespoke said. “The end result may be that we simply trade in a range for awhile longer.”
Spot gas prices across much of the Lower 48 bounced back on Friday as low prices incentivized some stronger power burns despite the generally mild weather.
NatGasWeather showed temperatures remaining “comfortable” across the northern United States into the “foreseeable future,” as a projected cool shot across the Midwest and East Monday and Tuesday is only expected to bring minor cooling. Meanwhile, Texas, the South and Southeast are forecast to stay in the mid-80s to lower 90s through the end of the month, though bouts of heavy showers should prevent widespread coverage of 90s, “a requirement if bearish weather sentiment is to flip to bullish,” according to the forecaster. Weather systems also were expected to push into the West throughout the week, but these are far from cold, the firm said.
Nevertheless, cash prices were up across the country. On the West Coast, prices for gas delivered through Monday were up a few pennies in California and as much as 6.0 cents in the Rockies.
A similar trend played out across most of Texas, though Permian Basin pricing retreated a bit day/day.
Some slightly sharper increases were seen in the Midcontinent, where Enable East spot gas jumped 9.0 cents to average $1.540 for gas delivered for the three-day period. Most markets in the Midwest tacked on a few cents day/day, while REX Zone 3 Delivered jumped 8.0 cents to average $1.525.
Farther east, Appalachian gas prices posted the largest gains given the brief cool snap hitting the region in the coming days. Dominion South averaged $1.165 after climbing 18.0 cents day/day, while similar gains were seen in the non-NY portion of the Transcontinental Gas Pipeline.