Traders looked past a bearish storage print by the Energy Information Administration (EIA) on Thursday and focused instead on persistently strong demand and relatively light production, a combination favorable for continued strength in natural gas prices. The prompt month has climbed five straight days and on Thursday topped the $4.00/MMBtu threshold for the first time since 2018.

At A Glance:

  • Nicholas looms as output threat
  • Cooling demand holds strong
  • Cash prices post solid gains

The August Nymex contract gained 4.4 cents day/day and settled at $4.003/MMBtu. September advanced 4.4 cents to $3.982.

Mizuho Securities USA LLC’s Robert Yawger, director of energy futures, said gas prices are soaring amid a “heat wave cooking much of the U.S.” He noted that the prompt month last traded above $4.000 on Dec. 14, 2018.  

NGI’s Spot Gas National Avg., meanwhile, stepped back after three days of gains, declining 2.5 cents to $3.785.

EIA reported an injection of 49 Bcf natural gas into storage for the week ended July 16 – higher than analysts’ median expectations and historic averages. While scorching hot and dry conditions covered much of the West during the covered week, parts of the nation’s midsection and much of the East saw average temperatures and demand. By region, the Midwest and East led with builds of 21 Bcf and 19 Bcf, respectively, according to EIA.

Ahead of the report, major surveys foreshadowed a build in the mid-40s Bcf. Reuters’ poll of analysts produced a median injection of 45 Bcf, while a Bloomberg survey landed at a median injection of 43 Bcf. NGI’s model predicted a 30 Bcf injection.

In the similar week a year earlier, EIA recorded a 38 Bcf build, while the five-year average injection is 36 Bcf.

The bearish result for last week pointed to a modest mid-summer loosening of balances after a 55 Bcf build a week earlier, Bespoke Weather Services said, initially sending futures lower after the EIA print.

However, Bespoke added, demand has outstripped supply most of the summer, and with heat expected to intensify in August and export activity poised to accelerate, storage levels are likely to prove lighter than average heading into the fall.

While the 49 Bcf build for last week was “not as tight as we were modeling, it is not enough to alter the narrative,” Bespoke said.

The build for the July 16 week lifted inventories to 2,678 Bcf, though that was well below the year-earlier level of 3,210 Bcf and shy of the five-year average of 2,854 Bcf. 

Production in July has hovered around 91 Bcf/d – below highs earlier in the summer around 92-93 Bcf — and did so again Thursday. At the same time, liquefied natural gas (LNG) volumes were close to 11 Bcf on Thursday – approaching record levels. Export demand is strong from both Asia and Europe, where supplies are light following a harsh winter and an unusually cool spring.

“Fundamentally, we see no material change in the overall bullish backdrop,” Bespoke said.

Domestic prices in Europe and Asia are lofty this summer, making lower-cost U.S. LNG attractive for buyers on both continents. That is expected to remain the case through the summer and into the fall.

“Low European storage combined with increasing decarbonization efforts as well as seasonally peaking demand are all major contributors to the price spikes abroad. These elevated international prices have greatly benefited U.S. LNG exporters, who despite higher Henry Hub prices, are making tremendous profits off the growing arbitrage,” said analysts at Gelber & Associates, an energy advisory firm.

“U.S. LNG exporters are heavily incentivized to continue to export enough LNG that we are quickly approaching the U.S. LNG market’s nameplate capacity at 11.6 Bcf/d,” the Gelber analysts said.

Looking ahead to next week’s storage report, participants on The Desk’s online energy platform Enelyst were anticipating a build in the 40s Bcf. Bespoke preliminarily modeled a 41 Bcf injection.

NatGasWeather noted “regionally strong demand across the West and Plains as hot upper high pressure produces highs of 90s to 100s” this week.

Cash Pauses

Spot gas prices sputtered Thursday, giving back some of the strong gains made over a rally the three previous days.

Price declines in the West led the national average lower. El Paso S. Mainline/N. Baja lost 59.0 cents day/day to average $5.480, while KRGT Del Pool shed 55.0 cents to $5.505 and SoCal Citygate declined 22.0 cents to $7.295.

NatGasWeather said national demand would gain more momentum this coming weekend and next week, as the hot ridge over the west-central United States expands eastward to cover most of the country with highs in the 90s.

However, the firm noted Thursday, “the overnight data also held the notion that national demand will ease to seasonal levels August 3-6 as weather systems over southern Canada push more aggressively into the northern U.S.”

More immediately, to finish out the current trading week on Friday, one weather system was expected to deliver showers and comfortable highs of 70s and 80s to the Great Lakes and East, while a boundary was forecast to stall across the southern U.S. to produce areas of showers but still warm highs of mid-80s to 90s, NatGasWeather said.

“Hot high pressure continues over the West and Plains with highs of 90s and 100s,” the firm added. “Overall, moderate demand over much of the eastern half of the U.S., while high over the West and Plains.”

Against that backdrop, prices declined at hubs in the East Thursday. Millennium East Pool in Appalachia fell 15.0 cents to $2.920. In the Northeast, Algonquin Citygate declined 20.0 cents to $3.070 and Niagara fell 9.5 cents to $3.155.

Despite Thursday’s setback, cash prices are on a tear this summer. Strength in prices this month builds upon a particularly strong June, EIA said in a research note Thursday. Last month, spot prices at Henry Hub averaged $3.26/MMBtu, “the highest price during any summer month (April–September) since 2014,” the agency said, citing NGI data.

Prices in July averaged $3.67 through the first two weeks of the month, before advancing further early this week.

Spot prices for July 14 in every one of the more than 175 pricing hubs tracked by NGI exceeded $3.00/MMBtu, EIA said. These include “supply hubs that have traditionally traded at notable discounts to the Henry Hub.”