Amid continued weakness in export demand, August natural gas futures extended their losses in early trading Tuesday even as the forecast overall remained supportively hotter than normal. The front month was down 1.7 cents to $1.722/MMBtu at around 8:45 a.m. ET.
The early selling Tuesday comes after what analysts at EBW Analytics Group dubbed a “feeble performance” for natural gas futures in Monday’s session, when the August contract dropped 6.6 cents. Monday’s slide owed partly to weakness in the cash market, according to the analysts.
“Despite 100 degree temperatures in Houston and Dallas, prices at Henry Hub fell 3 cents” day/day amid downward pressure from low liquefied natural gas (LNG) feed gas volumes and a break in the heat in other parts of the country, the EBW analysts said. “But the straw that broke the camel’s back was the sharp sell-off in the equities and oil markets late in the session, which accounted for nearly half of the August contract’s loss.
“…We continue to expect prices to strengthen later in the week. Given yesterday’s weak performance, though, the August contract could struggle to move any higher than the low $1.80s this week.”
Looking at the overnight guidance, the European model was largely unchanged, while the Global Forecast System added 5 cooling degree days (CDD) to its outlook, still leaving it more than 10 CDD cooler than its European counterpart, according to NatGasWeather.
“The coming pattern is still a hotter than normal one, with national CDD solidly above normal the next 15 days, especially so this weekend and next week,” the forecaster said. “But with prices selling off yesterday on slight cooler trends despite the pattern being hotter than normal, this suggests the natural gas markets require more extreme heat and/or tightening of the supply/demand balance, especially LNG exports that remain very weak.
“To our view, weather patterns will maintain a bullish posture through the end of July and better not back off or it could lead to further disappointment/selling.”
Based on the latest data early Tuesday, Bespoke Weather Services described the balance picture as “slightly stronger” day/day.
“Weather looks net neutral after the weekend cooler changes. Production is starting off around 0.5 Bcf/d lower in today’s preliminary data, with LNG volumes up slightly to 3.5 Bcf/d,” Bespoke said. “Mexican exports are also up a bit. Power burns are weaker in absolute terms with less heat currently, but still on par with the last week or so on a weather-adjusted basis…We see little reason why prices would need to move even lower from here.”
It’s possible the market is bracing for a potentially bearish print from this week’s Energy Information Administration storage report, the firm said.
However, “we would hesitate to read much into any number that falls over a holiday,” Bespoke said. “We have no problem with playing in the middle of the range for now, but our lean is a little more toward upside versus further downside here.”
August crude oil futures were off 76 cents to $39.34/bbl at around 8:45 a.m. ET, while August RBOB gasoline was down about 3.8 cents to $1.2350/gal.
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